ROBERT E. PAYNE, Senior District Judge.
This matter is before the Court on PLAINTIFF STEVES AND SONS, INC.'S MOTION FOR SUMMARY JUDGMENT ON JELD-WEN COUNTERCLAIMS (ECF No. 885). For the reasons set forth below, the motion was granted in part and denied in part, except to the extent that Steves & Sons, Inc. ("Steves") sought summary judgment on the basis that JELD-WEN, Inc.'s ("JELD-WEN") damages expert failed to apportion damages between specific misappropriated trade secrets, an issue on which the Court ordered further briefing because Steves raised it for the first time at oral argument.
Steves and JELD-WEN are both participants in the interior molded doorskin market in the United States. That type of doorskin is used to make interior molded doors, which are built to resemble solid wood doors at a much lower cost. Interior molded doorskin manufacturers create and ship doorskins to assembly plants, where molded door manufacturers use the doorskins to build door slabs that are then sold to retailers or distributors. Steves is an independent door manufacturer that is currently unable to produce its own doorskins, and has never done so. As a result, it must purchase doorskins from doorskin manufacturers. JELD-WEN, however, is a vertically integrated door manufacturer, meaning that it both produces doorskins and uses those doorskins internally to manufacture and sell finished doors. Steves currently purchases doorskins from JELD-WEN pursuant to a long-term supply agreement that the parties entered into in 2012 ("the Supply Agreement").
In March 2015, Steves hired a former JELD-WEN employee, John Pierce ("Pierce"), as a consultant for two primary purposes. First, Steves wanted Pierce to provide it with certain information that would allow it to build its own doorskin manufacturing plant, as part of what Steves referred to as its "MDS project" ("the MDS Project"). Second, Steves believed that Pierce could help verify the accuracy of JELD-WEN's key input costs for doorskins that it manufactured. Those input costs were the basis for the prices that JELD-WEN charged Steves for doorskins under the Supply Agreement, and JELD-WEN was required to provide the costs to Steves on an annual basis.
When he worked at JELD-WEN, Pierce and JELD-WEN had entered into multiple employment contracts indicating that Pierce would be exposed to certain information that JELD-WEN considered confidential or trade secrets, or both. Under those contracts. Pierce could not disclose the confidential information or trade secrets to any third parties except as required by law. The confidentiality provision in the most recent employment contract applied even after Pierce retired from JELD-WEN in 2012. When Steves later hired Pierce, he notified Steves that the confidentiality agreement with JELD-WEN prevented him from disclosing JELD-WEN's trade secrets or confidential information.
Between March 2015 and June 2016, Pierce obtained information about JELD-WEN's doorskin manufacturing methods. processes, and costs through interactions with five JELD-WEN employees: Ed Reed ("Reed"), Dale Williams ("Williams"), Bruce Fedio ("Fedio"), Greg Takes ("Takes"), and Jay Borrell ("Borrell"). The substance of the information given to Pierce and whether it is confidential or a trade secret is disputed. Reed did not recall giving Pierce any specific or confidential information, but also acknowledged that it was possible he did so. SUF ¶ 28; JELD-WEN's Response to the SUF ("SUF Response") (ECF No. 1008) (Under Seal) ¶ 28. Similarly, Williams did not remember telling Pierce any non-public information, but he conceded that Pierce could have confirmed confidential information that Pierce knew from his previous work with JELD-WEN. SUF ¶ 30; SUF Response ¶ 30. Fedio could only specifically recall saying to Pierce that JELD-WEN had received good news on favorable resin pricing, and did not realize that he had given Pierce any allegedly confidential information until he was told by counsel during this litigation. SUF ¶¶ 32-33. Takes also did not believe he ever gave Pierce JELD-WEN's confidential information or trade secrets, but was unable to respond fully allegedly because of the attorney-client privilege.
In any event. Pierce conveyed to Steves some or all of the information that he acquired from those JELD-WEN employees. According to JELD-WEN, Steves specifically had requested that Pierce provide Steves with that information and, in fact, paid him to do so. In addition, Steves found that information helpful in furthering the MDS Project.
In or around July 2015, Steves then retained Global Strategic Partners LLC, a company managed by John Ambruz ("Ambruz"), as a consultant to assist with the MDS Project. Like Pierce, Ambruz was a former JELD-WEN employee who had entered into an employment agreement with JELD-WEN that prevented him from disclosing confidential information or trade secrets he viewed during his employment. That prohibition applied even after his employment was terminated in April 2014. Steves became aware of Ambruz's confidentiality obligations at some point, although it is unclear when exactly that occurred.
In November 2015, Ambruz met with Pierce and Steves' principal officers, Edward Steves and Sam Steves II ("the Steves Brothers"), to discuss the possible construction of a doorskin manufacturing plant. Pierce subsequently prepared a detailed analysis for the Steves Brothers (and thereby Steves, too) concerning the effect of "die changes"
Sam Steves subsequently compiled the memoranda and e-mails that Pierce had sent to Steves about an independent doorskin plant, and sent those documents in June 2016 to Ambruz and Gregory Wysock ("Wysock")-a former employee of another vertically integrated doorskin manufacturer, Masonite. Steves hired Wysock to help with the MDS Project in July 2016. Shortly thereafter, he conducted another die analysis that was based on his review of Pierce's die change analysis. Other evidence reveals that Wysock was also aware of the configurations, capacities, productivity, and related processes for JELD-WEN's doorskin manufacturing plants, which JELD-WEN asserts that Pierce had obtained from JELD-WEN employees.
Since then, Steves has continued to work on the MDS Project and still is considering the feasibility of building its own doorskin manufacturing plant. For instance, Steves has informed customers who purchase its doors about the progress of the MDS Project at different stages. Steves has also had recent communications with manufacturing partners and equipment manufacturing partners about creating a doorskin manufacturing plant. Indeed, it was in the process of negotiating a deal with one partner, Proteak, when this litigation caused the deal to fall apart.
Steves initiated this action against JELD-WEN on June 29, 2016, asserting antitrust and contract claims against JELD-WEN related to JELD-WEN's 2012 acquisition of CraftMaster Manufacturing, Inc. and JELD-WEN's subsequent breaches of the Supply Agreement. Complaint (ECF No. 5) (Under Seal). The parties then engaged in discovery.
On March 27, 2017, JELD-WEN sought leave to amend its Answer and to add counterclaims against Steves based on JELD-WEN's recent discovery, from documents produced by Steves during discovery, that Steves may have used JELD-WEN's confidential information and trade secrets—obtained by Pierce and Ambruz—in furtherance of the MDS Project. ECF No. 101 at 1-2. JELD-WEN asserted the following proposed counterclaims: FIRST COUNTERCLAIM FOR RELIEF, Violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836; SECOND COUNTERCLAIM FOR RELIEF, Conspiracy to Violate Defend Trade Secrets Act, 18 U.S.C. § 1832(a)(5); THIRD COUNTERCLAIM FOR RELIEF, Violation of the Texas Uniform Trade Secret Act, Texas Civil Practice & Remedies Code Annotated §§ 134A.001 - 134A.008; FOURTH COUNTERCLAIM FOR RELIEF, Tortious Interference with Contract Under Texas Common Law, relating to Pierce's employment contract with JELD-WEN; FIFTH COUNTERCLAIM FOR RELIEF, Tortious Interference with Contract Under Texas Common Law, relating to Ambruz's employment contract with JELD-WEN; SIXTH COUNTERCLAIM FOR RELIEF, Breach of the Implied Covenant of Good Faith and Fair Dealing Under Delaware Law; and SEVENTH COUNTERCLAIM FOR RELIEF, Breach of Contract. ECF No. 106 (Under Seal) ¶¶ 41-78. On May 17, 2017, the Court granted JELD-WEN's request, and JELD-WEN filed the counterclaims. Counterclaims (ECF No. 252) (Under Seal).
Two other aspects of the Counterclaims are relevant here. First, the Fourth and Fifth Counterclaims were based on Steves causing Pierce and Ambruz, respectively, to breach their employment contracts with JELD-WEN by "providing trade secrets
At the same time that it allowed JELD-WEN to add the Counterclaims, the Court also ordered that those claims be tried separately from the antitrust and contract claims. ECF Nos. 239-240. Trial for the antitrust and contract claims began on January 29, 2018, and the jury returned a verdict in Steves' favor on all counts on February 15, 2018. ECF No. 1022. That verdict is not relevant to the Court's decision on Steves' summary judgment motion.
On June 19, 2017, Steves moved to dismiss the Second, Sixth, and Seventh Counterclaims for failure to state a claim. The Court granted the motion on September 13, 2017, dismissing those counterclaims with prejudice. ECF Nos. 353-354.
JELD-WEN then filed an action in Texas state court, alleging several trade secrets and related claims against the Steves Brothers and Pierce based on the same underlying facts as the Counterclaims. Shortly thereafter, JELD-WEN moved to voluntarily dismiss the Counterclaims, but the Court denied the motion, concluding that the trade secrets litigation had advanced to a stage where dismissal would prejudice the parties and that JELD-WEN's sole explanation for voluntary dismissal was lacking. ECF Nos. 579, 734.
On April 19, 2017, the Court ordered JELD-WEN to list the misappropriated trade secrets to be presented at trial and to identify the witnesses who would prove that they were trade secrets. ECF No. 143. JELD-WEN responded by filing a statement of misappropriated trade secrets on April 26, 2017. ECF No. 185 (Under Seal). After Steves raised concerns about the vagueness of the descriptions and the Court noted that the trade secrets needed to be "specifically identified," Aug. 9, 2017 Transcript (ECF No. 350) at 131:17, JELD-WEN served Steves with an updated statement, ECF No. 357-2 (Under Seal). Steves then moved to strike portions of the updated statement that were imprecise, and the Court granted that motion in part on October 6. ECF No. 424. In addition, the Court urged JELD-WEN to "err . . . on the side of making [the statement] so crystal clear and so precise that there can be no room for contention that you are being vague and leaving the door open." Oct. 3, 2017 Transcript (ECF No. 420) (Under Seal) at 22:6-8. Following those instructions, JELD-WEN filed an amended statement of misappropriated trade secrets on October 9 ("the Trended Statement"). ECF No. 428 (Under Seal). The Amended Statement contained a number of rows of trade secrets, but some rows contained more than one paragraph of information.
Steves relied on the Amended Statement to conduct its subsequent Rule 30(b)(6) depositions of JELD-WEN through JELD-WEN's two corporate designees. Reed and Brooks Mallard ("Mallard"). During those depositions, Steves' counsel asked the witnesses whether they understood certain rows to contain a single combination trade secret or multiple trade secrets. Testifying about different rows in the Amended Statement, Reed and Mallard both responded that JELD-WEN considers each individual item in the row to be confidential and a trade secret, and that the cumulative information in the whole row is also confidential and a trade secret. SUF ¶¶ 10-11; SUF Response ¶¶ 10-11. Reed also explained, though, that JELD-WEN does not keep a list of trade secrets, considers all its information confidential, and does not separate that information into items or groups. SUF ¶ 10; SUF Response ¶ 10.
JELD-WEN then filed an updated statement of misappropriated trade secrets to be asserted at trial on November 2 ("the Trial Statement"). ECF No. 468 (Under Seal). Shortly thereafter, JELD-WEN moved for leave to add several trade secrets to the Trial Statement based on the declarations of two individuals, including JELD-WEN's industry expert and former employee James Morrison ("Morrison"), that they had discovered additional misappropriated trade secrets and confidential information while reviewing documents produced by Steves. The trade secrets described by Morrison related to sales data from internal JELD-WEN documents that he viewed during his employment—which were reflected in Ambruz's Feasibility Study for Steves—and formulas Morrison created while working for JELD-WEN. ECF No. 511-2 (Under Seal). After the Court granted the motion, JELD-WEN filed its amended statement of misappropriated trade secrets for trial ("the Amended Trial Statement") on November 29. ECF No. 588 (Under Seal).
During Morrison's subsequent deposition, Steves' counsel questioned him about the trade secrets that were added in the Amended Trial Statement. As to the sales data information, Morrison could not identify specific data that he had seen in internal JELD-WEN documents as an employee, but stated that he had seen sales data in a number of databases to which he and Ambruz had access, and that the data in the Feasibility Study was "generally reflective" of JELD-WEN's data. SUF ¶ 18; SUF Response ¶¶ 17-19. He added that he did not need to research this recollection further because he was knew from his employment the number of shipments that customers were receiving. SUF Response ¶¶ 17-19.
Morrison also testified about the information in the Amended Trial Statement, having been retained by JELD-WEN to express his expert opinion on whether that information was confidential, protected, and valuable to JELD-WEN.
After expert discovery was completed, Steves moved for summary judgment on January 24, 2018. ECF No. 885. JELD-WEN filed its opposition on February 14. ECF No. 1005. Then, soon after the jury returned the verdict in Steves' favor on its antitrust and contract claims, Steves' counsel indicated that it would seek to amend its motion to incorporate relevant aspects of that verdict, and the parties agreed to have Steves move for leave to amend pursuant to an expedited briefing schedule. Feb. 20, 2018 Transcript (ECF No. 1039) at 13:14-18:16. However, Steves' counsel notified the Court the next day that it would not move for leave to amend. As a result, Steves filed its reply as scheduled on March 5, 2018. ECF No. 1124. JELD-WEN then moved to strike certain arguments in Steves' reply that pertained to the verdict and damages for JELD-WEN's tortious interference counterclaims—neither issue having been addressed in Steves' opening brief—and the Court granted the motion. ECF No. 1207.
Finally, on March 15, after JELD-WEN's counsel advised that JELD-WEN would not assert but one combination trade secret, the Court instructed JELD-WEN to submit an updated statement of trade secrets to be asserted at trial that delineated each trade secret and explained the source of the trade secret in more detail than in the Amended Trial Statement. In response, JELD-WEN filed an updated statement ("the Second Amended Trial Statement") on March 21, 2018. ECF No. 1218 (Under Seal). That statement removed generalized information from several rows in the Amended Trial Statement and also removed entirely the information constituting several trade secrets.
At oral argument, Steves again expressed concern about the specificity of certain trade secrets in the Second Amended Trial Statement and Steves' inability to examine the information therein as part of its summary judgment motion. During oral argument, JELD-WEN's counsel confirmed that it would pursue at trial only one combination trade secret. The Court permitted Steves to move separately for sanctions under Fed. R. Civ. P. 37 based on JELD-WEN's purported failure to comply with the Court's earlier orders to define the trade secrets with specificity. The Court also allowed Steves to seek a continuance of the trial given JELD-WEN's modifications in the Second Amended Trial Statement.
Under Fed. R. Civ. P. 56, a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Rule 56 requires the entry of summary judgment "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."
Steves seeks summary judgment on the First and Third Counterclaims on two grounds. First, it contends that JELD-WEN cannot satisfy all the elements of a trade secrets misappropriation claim under the federal Defend Trade Secrets Act ("DTSA") or the Texas Uniform Trade Secrets Act ("TUTSA"), because JELD-WEN's inadequate description of the trade secrets in the Amended Trial Statement means that it cannot establish the existence of any trade secrets. Second, Steves asserts that JELD-WEN's DTSA and TUTSA damages claims must fail because the report and testimony of JELD-WEN's damages expert, John Jarosz ("Jarosz") reflect that the damages asserted are speculative and inconsistent with JELD-WEN's allegations and Steves' conduct.
Under the DTSA, "[a]n owner of a trade secret that is misappropriated may bring a civil action [for damages or injunctive relief] . . . if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce." 18 U.S.C. § 1836(b)(1), (3)(A)-(B). Thus, to prevail on that claim, a plaintiff must establish that: "(1) it owns a trade secret; (2) the trade secret was misappropriated; and (3) the trade secret implicates interstate or foreign commerce."
18 U.S.C. § 1839(3). Misappropriation is defined as "acquisition," "disclosure[,] or use" of a trade secret under certain circumstances.
The TUTSA similarly allows a plaintiff "to recover damages for misappropriation" "[i]n addition to or in lieu of injunctive relief," Tex. Civ. Prac. & Rem. Code § 134A.004(a). The statute's definitions of trade secret and misappropriation are nearly identical to their DTSA counterparts.
Steves acknowledges that JELD-WEN has presented evidence creating a genuine dispute about whether Steves misappropriated any trade secrets. It also appears to concede that the trade secrets relate to interstate or foreign commerce. Indeed, it must do so, as the trade secrets concern the manufacture of doorskins that were, according to Steves' Complaint, sold in interstate commerce. Compl. ¶ 31. As a result, Steves is only contesting the existence of trade secrets that JELD-WEN owns.
Because the DTSA and TUTSA definitions of "trade secret" comprise multiple elements, it is necessary to clarify the nature of Steves' challenge. In this motion, Steves does not discuss whether JELD-WEN "has taken reasonable measures to keep [the] information [in its Amended Trial Statement] secret," 18 U.S.C. § 1839(3) (A), Tex. Civ. Prac. & Rem. Code § 134A.002(6) (A), so the Court need not address whether JELD-WEN has produced evidence that could satisfy that element. Steves has argued in this motion that information was not generally known or not readily ascertainable by other means, giving that information independent economic value. But, that argument is not addressed in detail.
Instead, the core of Steves' argument is that JELD-WEN has not identified its trade secrets with enough specificity, such that Steves cannot apply the required elements to the trade secrets claimed. A plaintiff bears the burden of "describ[ing] the subject matter of its alleged trade secrets in sufficient detail to establish each element of a trade secret."
The annotations by JELD-WEN's industry expert, Morrison, at his deposition indicated that the Amended Trial Statement contained 28 rows of trade secrets.
Steves also asserted that the Amended Trial Statement was vague because of how it was structured. Steves highlighted Rows 2 and 3 in support of this contention. Those rows, like many of the subsequent rows in the Amended Trial Statement, had a similar format: a general statement about the trade secrets described in that particular row, followed by two or more sentences or paragraphs claiming specific information as trade secrets.
This structure would not, by itself, make summary judgment for lack of specificity appropriate. After all, it is clear that information may be considered a trade secret in isolation or in combination with other information, even if the individual components of a combination trade secret are not identified with enough specificity to constitute trade secrets when read individually.
However, the facial ambiguity of the Amended Trial Statement was only compounded, not resolved, by the deposition testimony of relevant JELD-WEN witnesses. For example, asked whether the information in Row 5 constituted several individual trade secrets, one combination trade secret, or both. Reed stated that JELD-WEN considers "[a]ll of the multiple individual items . . . to be confidential," and that JELD-WEN does not specify that "these things are considered individual, these things are considered a group or a cluster." Reed Dep. (ECF No. 884-2) (Under Seal) at 99:5-100:10. In response to the same question about Row 21, however. Mallard said that "while each of these [paragraph] are . . . confidential and a trade secret, it's the . . . compilation of all these together that give[s] the picture, so to speak, that's the real trade secret." Mallard Dep. (ECF No. 884-3) (Under Seal) at 331:9-13. Finally, Morrison testified that he understands JELD-WEN to consider the information in Row 2 a trade secret "[s]eparately and in combination." Pressed for an explanation on what this phrase meant, Morrison responded that he could not testify about the existence of information as a separate or combination trade secret, and noted only that "all of this information is considered by JELD-WEN to be confidential." Morrison Dep. (ECF No. 884-5) (Under Seal) at 94:18-97:10.
Those explanations confounded the description of the trade secrets in the Amended Trial Statement. As Steves pointed out. Row 2, for instance, could have contained: (1) a single combination trade secret; (2) 12 separate, individual trade secrets (based on the number of sub-paragraphs), which may or may not combine to also form a single combination trade secret; or (3) some third alternative in between those two.
For that reason the Court ordered JELD-WEN to file the Second Amended Trial Statement which, along with counsel's representation that JELD-WEN will pursue only one combination trade secret, has cured the structural problems obscuring the trade secrets in the Amended Trial Statement, JELD-WEN has separated each trade secret into its own row and identified the source of the trade secret. Furthermore, where the Amended Trial Statement contained numerous rows with multiple paragraphs, the Second Amended Trial Statement contains only a few, in which a general statement about "know-how" or "knowledge" is followed by several sub-paragraphs explaining that know-how or knowledge in detail.
The explanations of JELD-WEN's counsel at oral argument further clarified the matter. Steves' counsel contested the specificity of several trade secrets in the Second Amended Trial Statement—15, 18, 22, 23, 62, 63, 66, and 67—on the same grounds it raised with respect to the Amended Trial Statement. Like many of the rows in the Amended Trial Statement, the descriptions for those eight trade secrets consist of a general statement about the category of information in the trade secret, followed by several sub-paragraphs detailing that general description.
Even if JELD-WEN can identify its trade secrets with particularity, Steves argues that summary judgment should be granted as to some of the trade secrets in the Second Amended Trial Statement because JELD-WEN cannot establish that the information therein constitutes a trade secret.
As noted, the only trade secrets elements that Steves appears to challenge in this motion are (1) whether the information in question was not generally known to, and (2) not readily ascertainable through proper means by, "another person who can obtain economic value from the disclosure or use of the information," such that the information has independent economic value. 18 U.S.C. § 1839(3) (B). The "generally known" requirement refers not to knowledge by the public at large, but rather "to the knowledge of other members of the relevant industry—the persons who can gain economic benefit from the secret."
As an initial matter, it is important to highlight the information to which Steves' arguments do not apply. For instance, Steves makes the sweeping statement that "much of the information in the Amended Trial Statement is generally known or readily ascertainable by proper means" simply because that information was given to Steves by Pierce, an "industry expert." Steves Br. at 16. Even if Pierce is such an expert, however, it is not necessarily true that he acquired the claimed trade secrets from that position, instead of through his employment at JELD-WEN. Moreover, Steves has not identified any information that was "generally known" to industry experts like Pierce, so it has not demonstrated the absence of a genuine dispute about that element. Likewise, Steves' assertions about JELD-WEN's failure to discipline employees who disclosed information to Pierce and JELD-WEN's lack of a written record of its trade secrets are only marginally relevant to whether the information possessed by JELD-WEN constitutes trade secrets. These overbroad contentions do not influence the Court's determination of whether trade secrets exist, and the Court will focus only on the specific trade secrets attacked by Steves.
Steves points to only three rows from the Amended Trial Statement that purportedly contain information that is generally known or readily ascertainable by proper means. But Steves' assertions are misguided. Two rows are no longer at issue here: (1) Row 29, because JELD-WEN withdrew its claim that the formulas noted in that row constitute a trade secret,
Steves moves for summary judgment on the Fourth and Fifth Counterclaims on the sole basis that those tortious interference with contract claims are preempted by the Third Counterclaim for trade secrets misappropriation under the TUTSA
The TUTSA generally "displaces conflicting tort, restitutionary, and other law of [Texas] providing civil remedies for misappropriation of a trade secret." Tex. Civ. Prac. & Rem. Code § 134A.007(a). However, the TUTSA does not affect certain claims, including: "(1) contractual remedies, whether or not based upon misappropriation of a trade secret; [or] (2) other civil remedies that are not based upon misappropriation of a trade secret."
The parties dispute whether JELD-WEN's tortious interference claims are "based upon misappropriation of a trade secret."
The scope of the TUTSA is a question of Texas law. Because the TUTSA was so recently enacted, few Texas courts have interpreted the scope of its preemption provision. The only one to have done so in detail, in
The effect of this holding on JELD-WEN's tortious interference claims is unclear. JELD-WEN notes that
Those cases observed, as many have, that it is premature to decide whether an alternative theory of relief is preempted before a plaintiff has shown, or it is not disputed, that the misappropriated information constituted trade secrets.
If that logic can be applied here, then summary judgment would be improper, because JELD-WEN has presented enough evidence to create a genuine dispute of material fact about Steves' misappropriation of JELD-WEN's confidential information in addition to its trade secrets. JELD-WEN clearly alleged that Steves' actions caused Pierce and Ambruz to breach their employment contracts with JELD-WEN by "providing trade secrets
Nonetheless, a closer examination of
Indeed,
Here, just like the plaintiff in
JELD-WEN's attempts to reconcile the cases it cites with the contrary conclusion in
For the foregoing reasons, PLAINTIFF STEVES AND SONS, INC.'S MOTION FOR SUMMARY JUDGMENT ON JELD-WEN COUNTERCLAIMS (ECF No. 885) was granted as to the Fourth and Fifth Counterclaims and denied as to the First and Third Counterclaims, except to the extent that the motion concerned JELD-WEN's damages claims for trade secret misappropriation, which will be addressed in a separate opinion.
It is so ORDERED.