Chemetall Gmbh v. Zr Energy, Inc.

• Decision Date: 25 February 2003
• Docket Number: No. 01-3707.,01-3707.
• Citation: 320 F.3d 714
• Parties: CHEMETALL GMBH, Plaintiff-Appellee, v. ZR ENERGY, INC., Joseph T. Fraval, and Arnold Berkovitz, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

320 F.3d 714

CHEMETALL GMBH, Plaintiff-Appellee, v. ZR ENERGY, INC., Joseph T. Fraval, and Arnold Berkovitz, Defendants-Appellants.

No. 01-3707.

United States Court of Appeals, Seventh Circuit.

Argued June 5, 2002.

Decided February 25, 2003.

COPYRIGHT MATERIAL OMITTED

Steven C. Schroer (argued), Fitch, Even, Tabin & Flannery, Chicago, IL, for Plaintiff-Appellee.

Thomas G. Griffin (argued), Ashman & Griffin, Chicago, IL, for Defendant-Appellant.

Before FLAUM, Chief Judge, and DIANE P. WOOD and WILLIAMS, Circuit Judges.

WILLIAMS, Circuit Judge.

After Chemetall GMBH acquired the assets of Morton International, Joseph T. Fraval left Morton and formed a competing company, Zr Energy, Inc. Chemetall sued Fraval for breach of his agreement with Morton to not use or disclose its confidential information. A jury found in favor of Chemetall. Fraval appeals the district court's denial of his motion to dismiss Chemetall's breach of contract claim, which the court treated as a motion for summary judgment, and challenges certain of the court's evidentiary rulings and jury instructions. Chemetall claims that the district court's denial of Fraval's pretrial motion is unreviewable on appeal. We agree with Fraval that because the motion raised purely legal questions, we may review it on appeal. Nevertheless, we conclude that the motion was properly denied and finding no other error, affirm the judgment of the district court.

I. BACKGROUND

Fraval was employed by Morton International (and its predecessors), where for 20 years he was involved in the production and marketing of zirconium powder, a chemical used in various pyrotechnic applications, including automobile air bags. Fraval signed an Employee Trade Secret Agreement with Morton in which he promised not to reveal confidential information regarding "improvements, inventions or know-how relating to" Morton's business. The agreement was to be effective during and after his employment and was to "inure to the benefit of [Morton's] successors and assigns."

Morton later sold its zirconium powder business to Chemetall. The Asset Purchase Agreement between Chemetall and Morton required Morton to keep secret the assets and information acquired by Chemetall and to have its employees undertake equivalent secrecy obligations. Three years after the sale, Fraval left Morton and, with Arnold Berkovitz, formed Zr Energy to produce and market zirconium powder.

Chemetall's amended complaint alleged that Fraval breached his confidentiality agreement with Morton, now enforceable by Chemetall by reason of its acquisition of Morton's zirconium powder business. It also alleged that Fraval, Berkovitz, and Zr Energy¹ wilfully and unlawfully misappropriated trade secrets Chemetall acquired from Morton.² In response to the amended complaint, Fraval moved to dismiss the breach of contract count for failure to state a claim under Rule 12(b)(6). The court denied the motion, which it treated as one for summary judgment under Rule 56 because Fraval relied on material outside of the complaint, namely, his Employee Trade Secret Agreement with Morton and the Morton/Chemetall Asset Purchase Agreement.

At trial, after Chemetall presented its evidence, Fraval moved for judgment as a matter of law on the trade secret and contract claims, arguing that there was insufficient evidence that the process used by Zr Energy was derived from the process used at Morton. The district court denied that motion. Later, at the close of evidence, Chemetall moved for judgment as a matter of law on its breach of contract claim on the grounds that the intent of the parties was clear and that the issue of contract interpretation could be decided by the court. The court denied this motion as well, concluding that the jury should be allowed to decide the issue of the parties' intent to assign to Chemetall the right to enforce Fraval's Employee Trade Secret Agreement. After the jury returned a verdict in favor of Chemetall on both claims, Fraval again moved for judgment as a matter of law, this time arguing there was insufficient evidence to show that the duty of confidentiality he owed to Morton was transferred to Chemetall. The court denied the motion, holding that Fraval waived the issue by not making a motion on this basis before the case was submitted to the jury, and entered judgment in favor of Chemetall.

II. ANALYSIS

A. Breach of Contract

On appeal, Fraval argues that the relevant contracts preclude Chemetall's claim that Fraval owed it an obligation of confidentiality. Fraval asks us to review the district court's denial of his Rule 12(b)(6) motion to dismiss Chemetall's contract claim, which raised this argument. Chemetall responds that the court treated this motion as one for summary judgment, that a court's denial of such a motion is unreviewable on appeal, and that Fraval waived the argument by not making it in his motions for judgment as a matter of law during and after trial.³

The district court treated Fraval's motion as one for summary judgment because Fraval attached to his motion the Employee Trade Secret Agreement and the Chemetall/Morton Asset Purchase Agreement. See Fed.R.Civ.P. 12(b) (if, on a motion to dismiss for failure to state a claim, a party relies on matters outside the pleading, "the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56").⁴ But whether the motion was analyzed under Rule 12(b)(6) or Rule 56, the issue was one of contract interpretation: whether the written contracts precluded an assignment to Chemetall of Fraval's confidentiality agreement with Morton. Because this issue did not depend on an evaluation of the sufficiency of the evidence, we think the ordinary rationale for declining to review a denial of summary judgment does not apply in this case.

The general rule in this circuit and elsewhere is that, after a trial on the merits, the court of appeals will not review the district court's earlier denial of a motion for summary judgment. See Watson v. Amedco Steel, Inc., 29 F.3d 274, 277 (7th Cir.1994) (citing Black v. J.I. Case Co., 22 F.3d 568, 570-71 (5th Cir.1994); Johnson Int'l Co. v. Jackson Nat'l Life Ins. Co., 19 F.3d 431, 434 (8th Cir.1994); Lama v. Borras, 16 F.3d 473, 476 n. 5 (1st Cir. 1994); Whalen v. Unit Rig, Inc., 974 F.2d 1248, 1250-51 (10th Cir.1992); Bottineau Farmers Elevator v. Woodward-Clyde Consultants, 963 F.2d 1064, 1068 n. 5 (8th Cir.1992); Jarrett v. Epperly, 896 F.2d 1013, 1016 (6th Cir.1990); Holley v. Northrop Worldwide Aircraft Servs., Inc., 835 F.2d 1375, 1377-78 (11th Cir.1988); Locricchio v. Legal Servs. Corp., 833 F.2d 1352, 1358-59 (9th Cir.1987); Glaros v. H.H. Robertson Co., 797 F.2d 1564, 1573-74 & n. 14 (Fed.Cir.1986)). This is because a denial of summary judgment is a prediction that the evidence will be sufficient to support a verdict in favor of the nonmovant. Watson, 29 F.3d at 277. Once the trial has taken place, our focus is on the evidence actually admitted and not on the earlier summary judgment record. Id.; Johnson Int'l, 19 F.3d at 434; Locricchio, 833 F.2d at 1359. "After trial, the merits should be judged in relation to the fully-developed record emerging from that trial.... We will not at that point step back in time to determine whether a different judgment may have been warranted on the record at summary judgment." Watson, 29 F.3d at 278 (citation omitted). Therefore, in order to preserve for appeal a challenge to the sufficiency of the evidence, the challenge must be raised in a Rule 50(a) motion for judgment as a matter of law before the case is submitted to the jury. Id. at 279; see also Hudak v. Jepsen of Ill., 982 F.2d 249, 250 (7th Cir. 1992); Rogers v. ACF Indus., Inc., 774 F.2d 814, 818 (7th Cir.1985); Ed Houser Enters., Inc. v. Gen. Motors Corp., 595 F.2d 366, 371 (7th Cir.1978).

But when, as in this case, the court's denial of summary judgment is not based on the adequacy of the evidence, the justification we just described does not apply. Rekhi v. Wildwood Indus., Inc., 61 F.3d 1313, 1318 (7th Cir.1995); see Gramercy Mills, Inc. v. Wolens, 63 F.3d 569, 571-72 (7th Cir.1995); Ruyle v. Cont'l Oil Co., 44 F.3d 837, 842 (10th Cir.1994) (noting "critical distinction between summary judgment motions raising the sufficiency of the evidence to create a fact question for the jury and those raising a question of law that the court must decide"); White Consol. Indus., Inc. v. McGill Mfg. Co., Inc., 165 F.3d 1185, 1189-90 (8th Cir.1999). For example, in Rekhi, we held that the defense of res judicata was not mooted by the district court's denial of summary judgment:

[T]he principle that an order denying summary judgment is rendered moot by trial and subsequent judgment on the merits is intended for cases in which the basis for the denial was that the party opposing the motion had presented enough evidence to go to trial. Defenses are not extinguished merely because presented and denied at the summary judgment stage. If the plaintiff goes on to win, the defendant can reassert the defense on appeal.

61 F.3d at 1318. Other circuits have likewise reviewed on appeal a district court's denial of a motion for summary judgment in cases in which the motion raised legal issues other than the sufficiency of the evidence. See Rose v. Uniroyal Goodrich Tire Co., 219 F.3d 1216, 1221 n. 3 (10th Cir.2000) (contract interpretation); White Consol. Indus., 165 F.3d at 1189-90 (8th Cir.1999) (same); Pennbarr Corp. v. Ins. Co. of N. Am., 976 F.2d 145, 149-55 (3d Cir.1992) (same) (reversing denial of motion for summary judgment after trial); Pavon v. Swift Transp. Co., 192 F.3d 902, 906 (9th Cir.1999) (res judicata); United Techs. Corp. v. Chromalloy Gas Turbine Corp., 189 F.3d 1338, 1344 (Fed.Cir.1999) (res judicata) (reversing judgment after trial); McPherson v. Kelsey, 125 F.3d 989, 995 (6th Cir.1997) (governmental immunity); Ruyle, 44 F.3d 837, 841-42 (collateral estoppel).

The Fourth...