Atlas Biologicals, Inc. v. Kutrubes

• Decision Date: 23 September 2019
• Docket Number: Civil Action No. 15-cv-00355-CMA-KMT
• Parties: ATLAS BIOLOGICALS, INC., Plaintiff, v. THOMAS JAMES KUTRUBES, an individual, PEAK SERUM, INC., a Colorado corporation, and PEAK SERUM, LLC., a dissolved Colorado limited liability company, Defendants.
• Court: U.S. District Court — District of Colorado

ATLAS BIOLOGICALS, INC., Plaintiff, v. THOMAS JAMES KUTRUBES, an individual, PEAK SERUM, INC., a Colorado corporation,and PEAK SERUM, LLC., a dissolved Colorado limited liability company, Defendants.

Civil Action No. 15-cv-00355-CMA-KMT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

September 23, 2019

Judge Christine M. Arguello

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This case involves a dispute between a corporation and its former employee over whether the former employee ran afoul of his legal and contractual duties when he established a competing business before he left the employ of the corporation and, if so, the extent to which the corporation was damaged by its former employee's actions.

Beginning on March 5, 2018, the Court presided over a five-day bench trial on Plaintiff Atlas Biologicals, Inc.'s claims for: (a) federal trademark infringement, in violation of the Lanham Act, 15 U.S.C. § 1114; (b) false designation of origin and federal unfair competition, in violation of the Lanham Act, 15 U.S.C. § 1125; (c) trademark and trade name infringement under Colorado common law; (d) misappropriation of trade secrets, in violation of the Colorado Uniform Trade Secrets Act, Colo. Rev. Stat. §§ 7-74-101, et seq.; (e) "conversion and civil theft" pursuant to Colo. Rev. Stat. § 18-4-405; (f) deceptive trade practices, in violation of the Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-105; (g) breach of fiduciary duty; and (h) breach of contract, see (Doc. # 101), as well as Defendants Thomas Kutrubes, Peak Serum, Inc., and Peak Serum, LLC's affirmative defenses of: (a) successful mitigation of damages; and (b) the doctrine of unclean hands, see (Doc. # 103). See (Doc. ## 131-35.) Having heard the evidence presented at trial and reviewed the parties' proposed findings of fact and conclusions of law (Doc. ## 154-55), the Court now enters its findings of fact and conclusions of law.

I. FINDINGS OF FACT

A. THE PARTIES

Plaintiff Atlas Biologicals, Inc. ("Atlas") specializes in the production of bovine serum¹-based products that are used for cell culture and research in the medical, veterinary, and biological sciences. (Doc. # 101 at 4.) Among bovine serum-based products, fetal bovine serum is in particularly high demand because it is widely utilizable in scientific research. (Id.) Fetal bovine serum is, as the name implies, derived from blood drawn from a bovine fetus. (Id.) It is a byproduct of the commercial beef industry, and its price rises and falls as the market for beef product fluctuates. (Id.) Atlas developed and sells EquaFETAL, a proprietary product that meets the specifications of fetal bovine serum but is purportedly more traceable, consistent in quality, and stable inpricing than fetal bovine serum. (Id. at 5.) Atlas, which maintains its principal office in Fort Collins, Colorado, owns and uses in commerce the registered mark EquaFETAL, in addition to the following registered or common law marks: FETAL+PLUS; PROGENISERUM; FETAL CHOICE; FETAL SELECT; ATLAS; ATLAS BIOLOGICALS; FETAL RESOURCE; and its logo. (Doc. # 123 at 13-14.) In 2014 and 2015, Richard "Rick" Paniccia was the president of Atlas and one of its owners (Paniccia Testimony, Doc. # 137 at 302); Brent Bearden was a partial owner (Bearden Testimony, Doc. # 139 at 555); and Michelle Cheever was the company's Director of Quality Assurance (Cheever Testimony, Doc. # 136 at 52). Paniccia and Bearden remain partial owners of Atlas today.

Defendant Thomas Kutrubes was also a partial owner of Atlas in 2014 and 2015 and continuing through the trial; he had at all relevant times a 7% ownership interest in Atlas. (Doc. # 101 at 5); see (Doc. # 103 at 3.) Kutrubes began working for Atlas as an intern in 2005 and was hired as an employee in 2006, initially serving as a regional sales manager. (Doc. # 101 at 6; Doc. # 11-7 at 1.) In January 2010, Kutrubes became a shareholder in Atlas, owning 5% of its common stock. (Doc. # 11-7 at 1.) Atlas awarded Kutrubes an additional 1% of the common stock the following year. (Id.) On November 9, 2012, Atlas promoted Kutrubes to be its National Sales Manager. (Doc. # 101 at 6.) On the date of his promotion, Kutrubes signed a job description for that position; the document listed as one of 12 "key responsibilities" "[u]nderstand[ing] and adher[ing] to company policies and procedures." (Doc. # 1-2.) Atlas already had in a place a policy entitled "Control of Confidentiality/Proprietary Information" that prohibitedall employees from disclosing without the company's prior written authorization any "Confidential and/or Proprietary Information." (Doc. # 1-3 at 5.) Kutrubes was subsequently elected to Atlas's Board of Directors and, on January 1, 2013, was awarded an additional 1% of Atlas's common stock. (Doc. # 11-7 at 2.)

B. THE BEGINNINGS OF PEAK SERUM

Unbeknownst to Atlas, Kutrubes was developing a business plan to compete with Atlas while he was still in Atlas's employ. See (Doc. # 10-2.) The business plan stated that Kutrubes's company, Peak Serum, would specialize in bovine serum-based products and generate market share among American academic institutions, with a "secondary" emphasis on exporting products to "Korea, Japan, China, Italy, and Canada." (Id. at 2.) Kutrubues's business plan continued, "Prices will be more competitive, and direct competition [will] be from Atlas to a certain extent due to SereaTech [sic] sourcing." (Id. at 6.) On October 31, 2014, Kutrubes filed articles of organization for Defendant Peak Serum, LLC with the Colorado Secretary of State. (Doc. # 11-1.) On December 9, 2014, Kutrubes dissolved Defendant Peak Serum, LLC and incorporated Defendant Peak Serum, Inc. ("Peak Serum") as a for-profit Colorado corporation. (Doc. # 11-4.)

Beginning the fall of 2014, at roughly the same time Kutrubes was establishing Peak Serum and while still employed by Atlas, Kutrubes "took certain information, documentation, and data" from Atlas by emailing documents from his Atlas-provided email account to his personal Gmail account. (Doc. # 123 at 23; Cheever Testimony, Doc. # 136 at 72.) These documents included Atlas's customer contact lists, a supplieragreement; its quality manual; its organizational chart; a contract manufacturing statement; proofs of labels; a marketing brochure; and email exchanges about Atlas's products, among others. See (Doc. ## 7-1-7-5.) Kutrubes also "sent certain emails to customers of [Atlas]" that contained Atlas's trademarks and trade names and "solicited business for his company, Peak Serum." (Doc. # 123 at 13.) In these emails, Kutrubes falsely represented to Atlas's customers that Atlas and Peak Serum were "sister companies," that Atlas was no longer conducting international business, and that Peak Serum would be assuming Atlas's international customers. See (Doc. ## 7-8-7-21, 8-1-8-21, 9-1-9-14.) Kutrubes also contacted Atlas's suppliers, contract manufacturers, and business partners, including SeraTec, Central Biomedia, and Rocky Mountain Biologicals, in attempt to secure product for Peak Serum. See (Doc. ## 10-12-10-18.) Kutrubes "admits he breached his duty of loyalty as an employee [of Atlas] between October 1, 2014, and continuing until his termination in December of 2014." (Doc. # 123 at 12.)

C. THE END OF THE EMPLOYMENT RELATIONSHIP

In mid-December 2014, Kutrubes informed Paniccia and Bearden that he was resigning from Atlas in order to independently sell fetal bovine serum. (Paniccia Testimony, Doc. # 138 at 369; Doc. # 101 at 6.) Kutrubes tendered a formal resignation letter to Atlas on December 16, 2014, with an effective date of December 19, 2014. (Doc. # 11-6.) He wrote that he was resigning "from employment" with Atlas and from his alleged role as a director of the company, despite his belief that he "did not perform the duties of a Director, such as overseeing the activities of the company" and did not"serve as an officer for the corporation." (Id. at 1.) In response to Paniccia and Bearden's purported "request and desire that the company purchase [his] shares," Kutrubes requested a buyout of his shares "upon the recent appraisal of the company at $3,200,000.00" and thus requested "a lump sum payment in the amount of $224,000.00." (Id.)

In the days after Kutrubes's resignation, Atlas discovered that prior to his resignation, Kutrubes had used his Atlas-provided email address to send numerous company documents to his personal Gmail account and to extensively email Atlas's customers to solicit business for Peak Serum. (Cheever Testimony, Doc. # 136 at 67; Paniccia Testimony, Doc. # 138 at 373.) Cheever, responsible for preparing the desktop Kutrubes used at Atlas for a future employee, observed that the desktop was "surprisingly clean" of files and that "a lot" of Kutrubes's email history was "missing." (Cheever Testimony, Doc. # 136 at 67-68.) Cheever restored many of the files and emails that had been deleted from the desktop and notified Paniccia and Bearden of the sensitive nature of their content. (Id. at 73.) Upon advice of its counsel, Atlas then retained an information technology consultant, Dan Silva, to "run a restore" and preserve evidence on the desktop. (Paniccia Testimony, Doc. # 138 at 373; Silva Testimony, Doc. # 136 at 14.)

In light of what it discovered on the desktop Kutrubes had used while an employee, Atlas "decline[d] [Kutrubes's] resignation" and "instead terminate[d] his directorship and employment for cause" on December 27, 2014. (Doc. # 11-7.) In its letter to Kutrubes, Atlas detailed its findings in the "large volume of material" Kutrubeshad apparently deleted from the desktop and alleged that Kutrubes had breached his fiduciary duties as a director and a shareholder and breached his "employment agreement." (Id. at 4.) It demanded that Kutrubes and Peak Serum "immediately return to Atlas" and cease using all materials obtained from Atlas, surrender all shares of stock in Atlas, and "abandon all plans to commence...