Gognat v. Ellsworth

• Decision Date: 06 June 2011
• Docket Number: No. 09SC963.,09SC963.
• Citation: 259 P.3d 497
• Parties: Timothy A. GOGNAT, Petitionerv.Chet J. ELLSWORTH, Joanne Ellsworth, Stephen Smith, and MSD Energy Inc., Respondents.
• Court: Colorado Supreme Court

259 P.3d 497

Timothy A. GOGNAT, Petitioner

v.Chet J. ELLSWORTH, Joanne Ellsworth, Stephen Smith, and MSD Energy Inc., Respondents.

No. 09SC963.

Supreme Court of Colorado, En Banc.

June 6, 2011.

Irwin & Boesen, P.C., Brad R. Irwin, Chris L. Ingold, Denver, Colorado, Attorneys for Petitioner.David L. McCarl, John P. Lange, Denver, Colorado, Attorneys for Respondents Chet J. Ellsworth, Joanne Ellsworth and MSD Energy, Inc.Hall & Evans, LLC, Michael W. Jones, Bruce A. Menk, Alan Epstein, Denver, Colorado, Attorneys for Respondent Stephen Smith.Justice COATS delivered the opinion of the Court.

Gognat sought review of the court of appeals' decision affirming the district court's summary judgment in favor of Smith. See Gognat v. Ellsworth, 224 P.3d 1039 (Colo.App.2009). The district court ruled that Gognat's trade secret misappropriation claim was barred by the statute of limitations. The court of appeals affirmed, holding that the various acts of misappropriation alleged in the complaint constituted multiple misappropriations of either a single trade secret or related trade secrets, the limitations period for which accrued at the time Gognat acquired knowledge of the defendant's first act of misappropriation.

Because the meaning of the term “trade secret” as used in the Colorado's Uniform Trade Secrets Act is a matter of law, to be determined by the court, and because undisputed facts demonstrate that all of the proprietary information alleged to have been misappropriated in this case constituted a single trade secret, the misappropriation of which was known to the plaintiff more than three years prior to filing his complaint, the judgment of the court of appeals is affirmed.

I.

Timothy A. Gognat filed a civil action in December 2005, naming a number of defendants, including Chet J. Ellsworth, Stephen Smith, and MSD Energy, Inc., and asserting, among other things, a claim of trade secret misappropriation. Following the dismissal of Gognat's claims against the other parties for lack of personal jurisdiction, Smith moved for summary judgment, asserting both the expiration of the applicable statute of limitations and the preemption of a number of Gognat's other claims by Colorado's Uniform Trade Secrets Act. Although it initially denied the motion, upon reconsideration following a second deposition of Gognat, the district court concluded that no genuine issue of material fact precluded it from entering summary judgment on Gognat's misappropriation claim based on his knowledge of certain acts of misappropriation by the defendants more than three years prior to commencing his lawsuit.

In his complaint, Gognat alleged that Smith introduced him to Ellsworth in the mid–1990's, and in 1997 he disclosed to Ellsworth proprietary information, described as a methodology for identifying and extracting reserves of oil and natural gas in western Kentucky. More particularly, the complaint alleged that the information Gognat developed “relating to probable reserves of oil and natural gas in the Western Kentucky Area included technical, geological, geophysical, and business information and existed in both an oral and documentary form (e.g., maps, charts, logs, seismographs, interpretations, calculations, summaries, opinions, and other written or charted means).” It further alleged that at the time Gognat shared this information with Ellsworth, the two men entered into a joint venture to use Gognat's information to profitably develop the probable reserves of oil and natural gas in the Western Kentucky Area and that, in that same year, Ellsworth formed MSD Energy, Inc.

The complaint also contained a number of factual allegations concerning Smith's involvement, the use of Gognat's information by the defendants to acquire permits and develop wells in the Western Kentucky Area without informing Gognat, and Gognat's discovery of and reaction to those activities. By January 2001, Gognat was aware that Smith was associated with the joint venture and that Ellsworth and Smith had discussed Gognat's proprietary information in connection with obtaining additional finances. In response to MSD's assignment of company interests in May of that year, Gognat objected that his compensation was not consistent with the terms of the joint venture, and he threatened to bring legal action against Ellsworth unless he were appropriately compensated for his trade-secrets contribution. By Gognat's own account, rather than initiating legal action, he continued to rely on the assurances of Ellsworth and Smith that their differences would be worked out fairly.

The complaint asserted that between 2001 and 2005, despite establishing a number of functional and producing wells, the defendants downplayed the value of their commercial exploitation of oil and gas in the subject areas and failed to compensate Gognat for the use of his trade secrets. It specifically alleged that between 1997 and 2001, the defendants “misappropriated” these trade secrets by acquiring leases in the Western Kentucky Area without adequately compensating him as agreed. In the summer of 2005, however, when beginning work with a different partner to develop another area within the Western Kentucky Area, Gognat allegedly discovered the defendants' involvement in that area as well, and upon further investigation, he discovered even more extensive activities being conducted by the defendants in the first area.

In moving for summary judgment, Smith relied on the allegations of the complaint and Gognat's testimony in his first deposition in asserting that no disputed issues of material fact existed concerning the timing of either the defendants' activities in the Western Kentucky Area or Gognat's knowledge of those activities. He noted that Gognat admitted to knowing in 2000, if not earlier, that the defendants were drilling wells in the Western Kentucky Area and that Gognat had on multiple occasions in 2002 threatened legal action based on “the usurpation of [Gognat's] proprietary data.”

Although Gognat did not dispute Smith's key factual assertions concerning the timing of his knowledge, he opposed the summary judgment motion by attempting to distinguish the two areas geographically, geologically, and generally by the engineering techniques involved in extraction. Gognat claimed that, notwithstanding his early knowledge of the defendants' activities in the first area, he was completely unaware of, and had no reason to suspect, their activities in the second area until 2005. He also contended that his suit against Smith was premised solely on those later-discovered activities in the second area.

The district court initially denied the summary judgment motion, concluding that a material dispute of fact existed regarding the accrual of Gognat's cause of action. Following Gognat's second deposition, however, Smith moved for reconsideration on the grounds that Gognat himself conceded the development of the two areas in western Kentucky were “all part of the same overall concept” and that he first learned of the defendants' misappropriations of his trade secret in 1997. The district court agreed and granted summary judgment to Smith based on the three-year statute of limitations.

On direct appeal, the court of appeals affirmed the district court's summary judgment, interpreting the applicable statute of limitations to prescribe a single accrual date for multiple misappropriations of either a single trade secret or multiple, related trade secrets, coinciding with the date the plaintiff first has knowledge of an act by the defendant that would allow a jury to reasonably infer misappropriation.

We granted Gognat's petition for a writ of certiorari on the question whether the district court's order of summary judgment was appropriate in this case.

II.

In this jurisdiction, actions for damages or injunctive relief from the misappropriation of trade secrets are governed by statute. See §§ 7–74–101 to –110, C.R.S. (2010) (“Uniform Trade Secrets Act”). The Act expressly defines both “misappropriation” and “trade secret” and provides a specific statute of limitations for actions alleging the misappropriation of trade secrets. See §§ 7–74–102, –107. Precisely what constitutes the misappropriation of a trade secret in this jurisdiction and when an action for misappropriation accrues are therefore matters of legislative intent, as expressed in the language of the applicable statutes. See Holcomb v. Jan–Pro Cleaning Sys. of S. Colo., 172 P.3d 888, 890 (Colo.2007); see also BP Am. Prod. Co. v. Patterson, 185 P.3d 811, 814 (Colo.2008) (construing statutory designation of accrual dates). Because Colorado's Act was modeled after the Uniform Trade Secrets Act (“UTSA”) of the National Conference of Commissioners on Uniform State Laws, see Unif. Trade Secrets Act (amended 1985), 14 U.L.A. 529–30 (2005); Ch. 63, sec. 1, 1986 Colo. Sess. Laws 460–62, the official comments of the National Conference provide some background for virtually identical provisions of the Colorado Act.

“Misappropriation” is defined broadly to include the “acquisition” of a trade secret by anyone who has reason to know it was acquired by improper means, as well as the “disclosure” or “use” of a trade secret without consent by anyone who acquired it improperly or had reason to know that his knowledge of it came from someone who got it improperly or under circumstances giving rise to a duty to either keep it secret or limit its use. See § 7–74–102(2). ¹ “Trade secret” is defined equally broadly to include all or part of virtually any information that is of value, whether it be in the nature of scientific, technical, business, financial, or professional information, as long as the owner has taken measures to prevent it from becoming available beyond those to whom he has given limited access. See § 7–74–102(4). ²

The statute of limitations expressly included in the Act requires an action for misappropriation to be brought within...