Fru-Con Const. Corp. v. KFX, Inc.

• Decision Date: 01 September 1998
• Docket Number: K-F,No. 97-8055,FRU-CON,97-8055
• Citation: 153 F.3d 1150
• Parties: , 98 CJ C.A.R. 5275 CONSTRUCTION CORPORATION, a Missouri corporation;Engineering, Inc., a Missouri corporation, Plaintiffs-Appellants, v. KFX, INC., a Delaware corporation;uel partnership, a Michigan general partnership; Theodore Venners, individually; Koppelman Fuel Development Company, a California limited partnership, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1150

153 F.3d 1150

47 U.S.P.Q.2d 1930, 98 CJ C.A.R. 5275

FRU-CON CONSTRUCTION CORPORATION, a Missouri corporation FRU-CON Engineering, Inc., a Missouri corporation Plaintiffs-Appellants, v. KFX, INC., a Delaware corporation; K-Fuel partnership, a Michigan general partnership; Theodore Venners individually; Koppelman Fuel Development Company, a California limited partnership, Defendants-Appellees.

No. 97-8055.

United States Court of Appeals Tenth Circuit.

Sept. 1, 1998.

John M. Horas, of Cockriel, Horas & Radice, L.L.C., St. Louis, MO (Steven M. Cockriel of Cockriel, Horas & Radice, L.L.C., St. Louis MO; Patrick R. Day, P.C., Lawrence J. Wolfe, P.C., of Holland & Hart, Cheyenne, WY, Joseph W. Halpern of Holland & Hart LLP, Denver, CO, with him on the briefs), for Plaintiffs-Appellants.

Steven F. Freudenthal of Herschler, Freudenthal, Salzburg, Bonds & Zerga, P.C., Cheyenne, WY (Joseph Butler of Bangs, McCullen, Butler, Foye & Simmons, LLP, Rapid City, SD, with him on the brief), for Defendants-Appellees.

Before SEYMOUR, Chief Judge, PORFILIO and HENRY, Circuit Judges.

SEYMOUR, Chief Judge.

In this diversity action, Fru-Con Construction Corp. and Fru-Con Engineering, Inc. (Fru-Con) brought suit against KFX, Inc., K-Fuel Partnership, Theodore Venners, and Koppelman Fuel Development Co. alleging, among other claims, misappropriation of Fru-Con's trade secrets. Defendants moved for summary judgment on all of Fru-Con's claims, and the district court granted the motion. Fru-Con appeals only the misappropriation of trade secrets claim, and we affirm. ¹

I

In June 1989, Energy America, Inc. (EAI) and K-Fuel Partnership (KFP) formed a corporation, EA-K Energy (EA-K). EAI and KFP each owned fifty percent of the common stock. EA-K was created to develop coal processing facilities in North America, which were to transform low-grade coal into a better fuel called K-Fuel. EA-K and KFP contacted Fru-Con about constructing and operating the K-Fuel plants and Fru-Con's West German parent corporation Bilfinger + Berger Bauaktiengesellschaft (B+B) about acquiring an interest in EA-K. After negotiations among the parties, Fru-Con drafted an "Initial Notice To Proceed and Letter of Intent Respecting EA-K Energy Company, Inc." (Letter of Intent), dated August 8, 1989, which set forth the parties' intentions to finance, construct, and operate the first of four Series B K-Fuel plants (the Unit 1 Project) near Gillette, Wyoming. ² All parties signed the Letter of Intent.

Under the Letter of Intent, the parties agreed to negotiate in good faith for the execution of three separate agreements: a Shareholder's Agreement; an Engineering Procurement and Construction Contract (EPC Contract); and an Operation and Management Agreement (O+M Agreement). The Letter specified the parties' intentions regarding the Shareholder's Agreement by providing, among other things, that "B+B shall make a capital contribution of up to $7.5 million in return for up to 10% of [EA-K] stock," and that EA-K "shall obtain firm financing commitments within 60 days of the date of this Letter of Intent for all amounts necessary to complete the development and construction of the Unit 1 Project." Aplt.App. at 13A. With regard to Fru-Con's role in the joint venture, the Letter of Intent provided:

e.) That Fru-Con, B+B's American subsidiary, shall, beginning immediately and continuing until a financial closing sufficient to fund the Unit 1 Project ("Financial Closing"), provide detailed engineering, site investigation, preparation of such permit applications, specifications and purchase orders for long lead items and any other such services as mutually agreed by the parties to be necessary to obtain financing and to meet the "in-service" requirements of Section 29 of the Internal Revenue Code of 1986 for the Unit 1 Project no later than December 31, 1990 [the Bridge Loan]. In the event Financial Closing does not occur within sixty days of the date of this Letter of Intent, Fru-Con shall not be required to perform any further services and B+B shall have no further obligation to make a capital contribution to [EA-K] Energy, but Fru-Con shall be nevertheless entitled to 1.33% of stock ownership in [EA-K] Energy for every one million dollars or portion thereof expended by Fru-Con at such time. Fru-Con may, at its option, continue to perform work necessary to keep the Project on schedule after the 60 days, however, for each additional $1,000,000 of expenditures or proportion thereof, its ownership of stock shall also increase by 1.33%. At the Financial Closing if it occurs within 60 days of this Letter of Intent, B+B agrees to make a cash capital contribution of up to $7.5 million, whereupon an amount of such contribution equal to the amount then outstanding under Fru-Con's Bridge Loan shall be distributed directly to Fru-Con by [EA-K] Energy as payment under the EPC contract for all services rendered to the date of B+B's capital contribution.

Aplt.App. at 13A-14. Finally, paragraph (f) stated "[a]s long as B+B and/or FruCon have an ownership interest in [EA-K] Energy, Fru-Con shall have the exclusive right for all K-Fuel ... design-build, operation, and maintenance contracts." Aplt.App. at 14.

The Letter of Intent stated the parties' agreement to negotiate in good faith an EPC Contract between Fru-Con and EA-K for the design and construction of the Unit 1 Project. It also restated Fru-Con's obligation to proceed with any work necessary to obtain financing until financial closing occurred so long as it occurred within sixty days of the Letter of Intent. The O+M Agreement was also to be negotiated in good faith by Fru-Con and EA-K and was to provide for the operation and management by Fru-Con of the Unit 1 Project for fifteen years.

Finally, the Letter of Intent provided that EAI, KFP, B+B, and Fru-Con "will not participate in the development, financing, owning, and operating of the K-Fuel plants in North America except through [EA-K] Energy." Aplt.App. at 15. Most importantly for our purposes, the Letter of Intent contained a clause discussing the legally binding effect of its provisions:

The parties understand, and agree, that except for Fru-Con's obligation to provide the Bridge Loan for a period of 60 days from the date of this Letter of Intent and the right of Fru-Con to a pro rata interest in [EA-K] Energy pursuant to paragraph e.) the matters set forth in the preceding paragraphs do not constitute a legally binding agreement....

Aplt.App. at 15.

In accordance with the terms of the Letter of Intent, Fru-Con immediately began performing various engineering and design tasks for EA-K. However, EA-K was unable to obtain financing for the Unit 1 Project within sixty days. Despite EA-K's failure, Fru- Con proceeded with its work on the Unit 1 Project through May 1990. At that time, Fru-Con sent an invoice to EA-K for $1,864,183.97 for the work it had done on the Unit 1 Project under the Letter of Intent.

On November 2, 1990, Enserv, Inc., a wholly owned subsidiary of Wisconsin Power & Light Co., purchased all of EAI's stock in EA-K and a portion of KFP's stock in EA-K. As a result of the transaction, Enserv owned 80% of EA-K and KFP owned the remaining 20%. Enserv provided immediate funds to continue work on the Unit 1 Project. Nevertheless, EA-K was ultimately unable to obtain financing for the project. The Shareholder's Agreement, EPC Contract, and O+M Contract were therefore never executed by the parties, and EA-K did not pay Fru-Con's bill of $1.8 million for work done through May 1990. Fru-Con never requested that EA-K issue any stock to Fru-Con in payment for its services, nor did EA-K present Fru-Con with a pro rata share of its stock as payment. By May 1991, EA-K had ceased to exist as a corporate entity and the parties to the Letter of Intent ceased their joint efforts to develop K-Fuel plants.

Despite the demise of EA-K, both Fru-Con and KFP worked independently with other entities to realize their initial objectives under the Letter of Intent to develop K-Fuel plants in North America. In May 1991, KFP and Enserv created a company called Heartland Fuels Corp. (Heartland), owned 80% by Enserv and 20% by KFP. KFP subsequently transferred to Heartland its license to develop the Series B K-Fuel process in North America. Fru-Con began working with Heartland to obtain financing for a Series B K-Fuel facility. Fru-Con and Heartland executed a confidentiality agreement which provided that Heartland could disclose Fru-Con's confidential information only for the limited purpose of obtaining financing through a specific Department of Energy grant.

Fru-Con was compensated for some of its continued work on the Series B K-Fuel process performed after May 1990. It received approximately $124,000 from Enserv and Heartland for work completed on various engineering and construction projects from December 1990 through early 1993. It also received approximately $1.4 million from Energy Brothers Technology, Inc. and Wyoming Research Institute for engineering work completed for the period April 1990 through May 1991. In early 1993, Heartland's attempts to obtain financing for the project failed and Fru-Con stopped working on the Series B K-Fuel plant altogether.

KFP also independently sought to develop K-Fuel plants using the Series C process with Harris Group. ³ To facilitate Harris Group in developing Series C K-Fuel plants, KFP transferred Fru-Con's allegedly confidential work on the Series B process to Harris Group in late 1992 through the middle of 1994. Included within this information was an eight volume set of "EA-K Partnership Project Books," which consisted of Fru-Con's work through February 1990 on the Unit 1 Project. Fru-Con contends that Harris Group reviewed and relied on Fru-Con's work on the Series B K-Fuel plants in constructing and designing the Series C plants.

KFX, KFP's corporate successor, ⁴ originally initiated this suit in state...