MICHAEL J. WATANABE, Magistrate Judge.
In a previous state court case, Plaintiff won a jury verdict for trade secret misappropriation, conversion, and breach of contract, while losing on some other claims. (Docket No. 46-3.) Plaintiff also requested injunctive relief, but the trial court denied the request—suggesting that Plaintiff could instead bring a second suit for continuing damages. (Docket No. 23-2.) Plaintiff did so. (Docket No. 3.) Defendants removed this second suit to federal court, creating the case now at bar. (Docket No. 1.)
Defendants move to dismiss certain claims and parties. (Docket No. 46.) District Judge Robert E. Blackburn referred the motion to the undersigned. (Docket No. 47.) The Court has reviewed the parties' filings (Docket Nos. 46, 49, 52, 56, & 59), taken judicial notice of the court's entire file in this case, and reviewed the relevant Federal Rules of Civil Procedure, statutes, and case law. Now being fully informed, the Court hereby recommends that the motion be granted in part and denied in part.
Defendants move to dismiss all claims against Defendant Newsco International Energy Services, Inc. ("NIESI") for lack of personal jurisdiction under Rule 12(b)(2). (Docket No. 46, pp. 2-5; Docket No. 49, pp. 1-4 & n.1.) Judge Blackburn states the analysis under Rule 12(b)(2) as follows:
Allison v. Wise, 621 F.Supp.2d 1114, 1117-18 (D. Colo. 2007) (internal quotation marks, alterations, citations, and footnote callout omitted).
Defendants also move to dismiss most of Plaintiff's claims as to all defendants under Rule 12(b)(6), for failure to state a claim upon which relief can be granted. As Judge Blackburn has stated:
Driskell v. Thompson, 971 F.Supp.2d 1050, 1057 n.8 (D. Colo. 2013) (internal citations omitted). The Court concludes that, under the second and third instances identified by Judge Blackburn, each of the exhibits attached Defendants' motion (Docket Nos. 46-1, 46-2, & 46-3) and Plaintiff's response (Docket No. 49-1) may be considered at this stage without converting the motion into a summary judgment motion.
Defendants' Rule 12(b)(6) arguments challenge certain abstract legal questions rather than the factual sufficiency of the allegations, and the Court will therefore dispense with its usual recitation of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009).
As alleged by the Amended Complaint (Docket No. 36), Plaintiff "is in the business of renting and supplying equipment for the production of oil and gas." (Id. ¶ 27.) From December 2008 to July 2011, Daniel Gallagher purchased a "Sealed Bearing Pack Design" and a "Wash Bearing Pack Design" from Defendant Ficken and a third party. (Id. ¶¶ 21-25.) Gallagher then contributed the Designs to Plaintiff, an LLC for which Gallagher was the sole member. (Id. ¶ 26.) Plaintiff "uses the Designs to manufacture, assemble, maintain and rent mud motors to various customers using them in the operation of oil and gas wells to produce oil and gas within the United States." (Id. ¶ 27.)
At some point after he sold the Designs to Plaintiff, Defendant Ficken began working for one or more of the other Defendants—NIESI, Newsco International Energy Services USA, Inc. ("Newsco USA"), or Newsco Directional & Horizontal Services, Inc. ("Newsco D&H") (collectively, the "Newsco Defendants"). (Id. ¶ 28.) An incident caused Plaintiff to suspect that the Newsco Defendants were using the Designs previously sold to Gallagher. (Id. ¶ 29.) Plaintiff investigated and determined that Defendants are "utilizing the same design for sealed bearing packs and wash bearing packs which are owned by" Plaintiff. (Id. ¶ 30.) Defendants currently use "the Designs in [their] oil and gas production operations in North America, Russia, and other countries." (Id.)
In 2013, Plaintiff sued Defendants plus one other individual in Colorado state court. (Id. ¶ 31.) The case went to trial, and the jury returned a verdict for Plaintiff. (Id.) It returned a verdict of $1.3 million on Plaintiff's trade-secret claim; $45,000 on Plaintiff's conversion claim; and $45,000 on Plaintiff's contract claim against Ficken.
Defendants continue to use the Designs, despite losing the state-court lawsuit. (Id. ¶ 37.) Plaintiff requested injunctive relief to prevent Defendants from doing so, but the state-court judge denied the request "based on his concern that the general jury verdict forms used did not allow the jury to identify which part of the Sealed Bearing Pack Design is a trade secret." (Id. ¶ 38.) The judge "also stated that there was nothing to prevent [Plaintiff] from filing an additional suit for ongoing damages." (Id.) Plaintiff thus filed the suit now before this Court, "seeking ongoing and future damages for the Defendants' use of the . . . Sealed Bearing Pack Design that has occurred after December 31, 2013." (Id. ¶ 39.) The Complaint makes five claims for relief:
(Id. ¶¶ 41-70.)
Defendants make four arguments for dismissal. First, they argue that Colorado courts lack personal jurisdiction over Defendant NIESI. Second, they argue that CUTSA displaces any application of the civil-theft statute or an unjust enrichment theory to the misappropriation of trade secrets. Third, Defendants argue that Colorado's civil-theft statute cannot apply to conduct taking place outside Colorado's territorial borders. Finally, they argue that Plaintiff's civil-theft claim is barred by res judicata.
Defendants argue that NIESI has no contacts with Colorado that would allow the courts of this state to exercise personal jurisdiction over it, and that the state court did not actually decide the question such that collateral estoppel would apply. In the alternative, Defendants argue that this lawsuit requires a new determination of personal jurisdiction based on the time frame since the original lawsuit.
Defendants' argument as to preclusion is correct, up to a point: collateral estoppel does not apply. One of the elements of collateral estoppel is that the issue must have been actually decided by the prior court. See Concerning Application for Water Rights of Sedalia Water & Sanitation Dist. in Douglas Cnty., ___ P.3d ___, 2015 WL 525923, at *4 (Colo. 2015). That did not happen here. In the state court action, Defendants raised personal jurisdiction on both a motion to dismiss and a motion for summary judgment; both times the state court held that Plaintiff had shown enough to proceed and that disputes of fact prevented the court from finally deciding the question. (Docket No. 49-1, pp. 8-9.) But Defendants neglected to raise the challenge again at the close of evidence—and when they raised it in a post-trial motion, the state court held that they had not properly preserved it under Colorado law. (Id. (citing Archangel Diamond Corp. v. Lukoil, 123 P.3d 1187, 1192 & n.3 (Colo. 2005); Gotteman v. North Fork Valley Restaurant, 176 P.3d 60, 66 (Colo. 2007)).) Accordingly, the state court held that Defendants had waived the defense. The question was therefore never actually decided, and collateral estoppel does not apply.
But the relevant doctrine here isn't collateral estoppel (issue preclusion)—it's res judicata (claim preclusion). For purposes of res judicata, jurisdictional challenges are defenses that must be raised in the first court or forever lost. See Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706-07 (1982); WRIGHT & MILLER, 18A FED. PRAC. & PROC. JURIS. § 4430 (2d ed.) ("A defendant who appears to litigate the merits without properly preserving an objection to personal jurisdiction forfeits the right to raise the objection in the initial proceeding and is bound by the resulting judgment."). Courts routinely prohibit defendants who neglected to raise personal jurisdiction in the first action from raising it in the second, unless the first action ended in a default judgment. United States v. Bigford, 365 F.3d 859, 865 (10th Cir. 2004) ("Indeed, as long as a party had an opportunity to litigate the jurisdictional issue, it is not subject to collateral attack on that basis."). Similarly, a plaintiff who fails to establish personal jurisdiction on one theory will be barred by res judicata from trying again on a new theory. Eaton v. Weaver Mfg., 582 F.2d 1250, 1256-57 (10th Cir. 1978).
Sitting in diversity, this Court must apply Colorado law on res judicata. Although this Court has been unable to find a case dealing with waiver of personal jurisdiction, the Colorado Supreme Court has held that a failure to challenge subject-matter jurisdiction will preclude a defendant from raising that question on collateral attack. In re Water Rights of Elk Dance Colorado LLC, 139 P.3d 660, 669-71 (Colo. 2006). The Court concludes that the Colorado Supreme Court would apply the same rule to personal jurisdiction. As a result, because Defendants litigated the merits of the prior action and (inadvertently) waived their challenge to personal jurisdiction, they may not raise personal jurisdiction in later litigation over the same claims.
In the alternative, Defendants argue that even if some form of preclusion applies, it can apply only to the period of time actually litigated in state court—the period before December 31, 2013. Because this second lawsuit concerns damages and/or continuing misappropriation accruing after that date, Defendants argue, personal jurisdiction must be established anew—based on a current minimum-contacts analysis.
This temporal argument fails because of the type of personal jurisdiction at issue. If personal jurisdiction were asserted on a general-jurisdiction theory, based on the defendant being "at home" in Colorado, the current state of affairs would indeed be the dispositive question. But here, the Court's personal jurisdiction is premised on specific jurisdiction—that is, based on the defendants' minimum contacts as they relate to the specific claims at issue.
Defendants argue that Plaintiff's second and fourth claims for relief—civil theft and unjust enrichment—are barred by CUTSA, which provides:
(2) This article does not affect:
C.R.S. § 7-74-108. This provision preempts other claims where they "are no more than a restatement of the same operative facts which would plainly and exclusively spell out only trade secret misappropriation." Powell Prods., Inc. v. Marks, 948 F.Supp. 1469, 1474 (D. Colo. 1996). It does not bar every claim arising from the same set of facts. "Often, a plaintiff will be able to state claims that do not depend upon the information in question qualifying as trade secrets," and further, "a plaintiff may also bring claims that, although involving a trade secret misappropriation issue, include additional elements not necessary for a misappropriation claim under the UTSA." Id. In Powell Products, Judge Babcock explained the distinction as follows:
Id. at 1474-75.
Plaintiff here argues that his civil-theft and unjust-enrichment claims are not preempted—or not entirely preempted—because they relate to property over and above the trade secrets. More specifically, Plaintiff's second and fourth claims for relief are premised on Defendants' possession or use of "proprietary, confidential information," in addition to trade secrets. (See Docket No. 36, ¶¶ 50, 65 (emphasis added).)
Plaintiff misreads Judge Babcock's opinion. The only portion of the conversion claim in Powell Products that proceeded forward was the claim as it related to physical property. To the extent it related to intellectual property, the claim was either preempted or meritless, depending on whether the intellectual property qualified as a protectable trade secret. Here, there are no allegations that Defendants have misappropriated any drawings, plans, or other tangible property; the Amended Complaint alleges that they have misappropriated the Sealed Bearing Pack Design and the Wash Bearing Pack Design, and nothing else. Further, Plaintiff has pointed to no authority for the proposition that the Designs (or any portion thereof) are protectable by virtue of anything other than their potential status as trade secrets. As a result, Plaintiff's civil-theft and unjust-enrichment claims are displaced. The Court recommends that they be dismissed.
Defendants also argue that Colorado's civil-theft statute does not apply to conduct taking place outside Colorado's borders. In response, Plaintiff concedes the legal point, but argues that the conduct at issue here took place within Colorado.
Defendant has the better of the argument, at this stage of proceedings. "To succeed on his civil theft claim, [a] plaintiff ha[s] to establish that (1) defendant knowingly obtained control over his property without authorization and (2) defendant did so with the specific intent to permanently deprive him of the benefit of the property." Huffman v. Westmoreland Coal Co., 205 P.3d 501, 509 (Colo. App. 2009) (citing Itin v. Ungar, 17 P.3d 129, 134 (Colo.2000), and C.R.S. § 18-4-401(1)). Here, Plaintiff's allegations bearing on the actual conduct meeting these elements appear in one paragraph:
(Docket No. 36 ¶ 29.) The state-court complaint from the underlying litigation provides a bit more information: the "former employee" was Ed Sensenich—who worked for Plaintiff from November 2011 to February 2013, and who went to work for Defendants after that. (Docket No. 46-1, ¶¶ 5, 10-11.)
Plaintiff is organized and headquartered in Colorado; it is reasonable to infer, for purposes of a motion to dismiss, that Sensenich's employment was also based in Colorado. But that alone does not provide any information about whether Sensenich was located in Colorado when he actually purloined motor parts from Plaintiff's control and delivered them to Defendants. Plaintiff's argument to the contrary focuses not on the elements of the tort but on the location of its damages: Defendants compete with Plaintiff in a national market, including in Colorado, and thereby causes harm to Plaintiff in Colorado. (See Docket No. 49 p. 14.) But where Plaintiff's damage is suffered is not part of the extraterritoriality anaylsis. The Complaint provides no basis from which the Court could reasonably infer that the elements of the tort are satisfied by conduct taking place within Colorado's borders. Moreover, to the extent the theft was effectuated in other ways—for example, by Defendant Fricken's conduct in replicating ideas he previously sold to Plaintiff—the Amended Complaint is silent as to where such conduct took place.
That said, the facts as alleged might state a claim under the law of whatever jurisdiction Senenich's and Defendant Fricken's conduct did take place in. Should the District Judge reach this question, the Court recommends that Plaintiff's civil-theft claim be dismissed with leave to re-plead—under another state's law, if applicable.
Finally, Defendants argue that Plaintiff's attempt to assert civil theft is barred by the state-court judgment against Plaintiff on this count. (See Docket No. 46, pp. 12-14.) Plaintiff admits that it lost this claim once already, but argues that its can maintain a new action based on Defendants' continued wrongful possession of the stolen property. (See Docket No. 49, pp. 15-16.)
Plaintiff's continuing-violation theory has been rejected by this court before, in the context of the statute of limitations:
See Kelley v. New York Life Ins. & Annuity Corp., Case No. 07-cv-01702-LTB, 2008 WL 1782647, at *6 (D. Colo. Apr. 17, 2008) (internal citations omitted). This reasoning applies equally to Plaintiff's res judicata argument. Assuming Plaintiff has stated a claim for civil theft, it is the exact same claim stated in the previous litigation; the fact that Defendants continue to possess the property does not mean that Plaintiff accrues a new claim daily. See Salas v. United States, Case No. 11-cv-00784-CMA, 2012 WL 4097303, at *3 (D. Colo. Sept. 18, 2012), affirmed on this point, 527 F. App'x 813 (10th Cir. 2013) (stating that "the continuing tort doctrine `does not apply to actions that are complete in themselves, rather, it applies to a continuing course of conduct, which, over time, causes injury.'").
Plaintiff does not otherwise contest that its claim is barred. And since this claim was actually litigated by the state court, with a final judgment on the merits following a full and fair opportunity to litigate the question, the Court finds that preclusion does indeed apply. See S.O.V. v. People in Interest of M.C., 914 P.2d 355, 358 (Colo. 1996) (elements of res judicata and collateral estoppel). The Court therefore recommends that Plaintiff's civil-theft count be dismissed.
For the foregoing reasons, the Court hereby RECOMMENDS that Defendants' Fed.R.Civ.P. 12(b)(2) and (6) Motion to Dismiss (Docket No. 46) be GRANTED IN PART and DENIED IN PART, as follows:
