Hertz v. Luzenac Group

• Decision Date: 11 August 2009
• Docket Number: No. 06-1324.,No. 06-1358.,06-1324.,06-1358.
• Citation: 576 F.3d 1103
• Parties: Sanford Lee HERTZ, Plaintiff-Counterclaim-Defendant-Appellee-Cross-Appellant, v. The LUZENAC GROUP, a French corporation, Defendant, and Luzenac America, Inc., a Colorado corporation, Defendant-Counterclaimant-Appellant-Cross-Appellee, v. Lane Lighthart, an individual, Third-Party Defendant-Counterclaimant-Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

576 F.3d 1103

Sanford Lee HERTZ, Plaintiff-Counterclaim-Defendant-Appellee-Cross-Appellant, v. The LUZENAC GROUP, a French corporation, Defendant, and Luzenac America, Inc., a Colorado corporation, Defendant-Counterclaimant-Appellant-Cross-Appellee, v. Lane Lighthart, an individual, Third-Party Defendant-Counterclaimant-Cross-Appellant.

No. 06-1324.

No. 06-1358.

United States Court of Appeals, Tenth Circuit.

August 11, 2009.

Andrew M. Low (Janet A. Savage, Richard P. Holme, and Elizabeth H. Titus with him on the briefs) of Davis Graham & Stubbs LLP, Denver, CO, for Defendant-Counterclaimant-Appellant-Cross-Appellee.

Theresa L. Corrada of Issacson Rosenbaum P.C., Denver, CO, (Byeongsook Seo of Isaacson Rosenbaum P.C., Denver, CO, and John A. Culver of Benezra & Culver, L.L.C., Lakewood, CO, with her on the briefs) for Plaintiff-Counterclaim-Defendant-Appellee-Cross-Appellant.

Before KELLY, HOLLOWAY, and HOLMES, Circuit Judges.

HOLMES, Circuit Judge.

This appeal arises from a series of claims and counterclaims between Luzenac America, Inc. ("Luzenac") and two of its former employees, Sanford Lee Hertz and Lane Lighthart. In response to Mr. Hertz's complaint, Luzenac alleged that Mr. Hertz and Mr. Lighthart misappropriated the company's trade secrets related to the production and marketing of vinyl silane-coated talc. Luzenac also brought related claims for breach of contract and conspiracy. Mr. Hertz, in turn, filed claims against Luzenac for tortious interference with contract and with prospective business advantage; he also sought to amend his complaint to add a claim for abuse of process, but the district court denied this request. The district court found that the information that Mr. Hertz and Mr. Lighthart allegedly misappropriated was not a trade secret. It therefore granted Mr. Hertz summary judgment on that claim as well as the breach of contract and conspiracy claims. Additionally, the district court dismissed Mr. Hertz's claims for tortious interference.

Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part and reverse in part. We find that the question of whether Luzenac's manufacturing process is a trade secret is a question of fact that cannot be resolved on the current record. Similarly, we find that Luzenac has raised genuine issues of material fact with respect to the secrecy of its customer information. Accordingly, we REVERSE and REMAND for further proceedings on Luzenac's claims. We agree with the district court that Mr. Hertz has failed to present adequate claims of tortious interference with contract and prospective business advantage. Accordingly, we AFFIRM the district court's dismissal of these claims. We also AFFIRM the district court's denial of Mr. Hertz's motion to amend his complaint.

BACKGROUND

Luzenac is a leading producer and seller of talc. Talc is a soft mineral in the magnesium silicate family and is used as an additive in many products, including rubber, paper, and ceramics. From 1994 until about 2002, Luzenac sold various formulations of vinyl silane-treated talc, which is used as an additive in rubbers, paints, and coatings. Beginning in 1995, that product was known as Mistron 604AV or simply 604AV. Since 2002, 604AV has been produced by one of Luzenac's distributors, Van Horn, Metz & Co., Inc. ("VHM"), under license from Luzenac, and Luzenac has sold the raw talc used in the product to VHM.

In August 1994, Luzenac hired Mr. Hertz to direct technical aspects of developing and marketing the product that later became 604AV. Luzenac employed Mr. Lighthart to market and sell 604AV to companies within the coatings industry. Mr. Hertz was fired in January 1998, but he successfully sued Luzenac under Title VII for discharging him in retaliation for his objections to Luzenac's religious discrimination. See Hertz v. Luzenac Am., Inc., 370 F.3d 1014 (10th Cir.2004). Mr. Lighthart testified on Mr. Hertz's behalf in the Title VII case and left Luzenac in June 2001.

A few years after Luzenac fired Mr. Hertz, Mr. Hertz obtained other work in the industry. IMI Fabi, LLC contracted with Mr. Hertz's consulting company to develop and market a vinyl silane-treated talc called "Genera." Mr. Hertz contracted with Mr. Lighthart to help market Genera and asked Mr. Lighthart to provide a list of prospective customers. When Luzenac learned of Mr. Hertz's contract with IMI Fabi, it sent Mr. Hertz a cease-and-desist letter through his counsel. Upon hearing of Luzenac's concerns, IMI Fabi reduced its efforts to market Genera. Three days later, Mr. Hertz commenced litigation against Luzenac in Colorado state court seeking declaratory and injunctive relief. In the Hertz state court action, Luzenac alleged counterclaims of interference with contract and with prospective business advantage, misappropriation of trade secrets, conversion, civil theft, and breach of contract. Mr. Hertz in turn amended his complaint to include claims of unlawful retaliation under Title VII, defamation, tortious interference with contract, and tortious interference with prospective business advantage.

Luzenac then removed the case to federal district court. Luzenac also joined Mr. Lighthart as a counterclaim defendant and added counterclaims for unjust enrichment and conspiracy. The district court denied Mr. Hertz's motion to amend his complaint to add an abuse of process claim. The district court granted summary judgment in favor of Mr. Hertz and Mr. Lighthart on most of Luzenac's claims. Relevant to this appeal, it ruled against Luzenac on its claims of misappropriation of trade secrets, misappropriation of customer information, conspiracy, and breach of contract. It ruled in favor of Luzenac on Mr. Hertz's claims for tortious interference with prospective business advantage and tortious interference with contract.¹

DISCUSSION

Luzenac appeals from the dismissal of its claims for misappropriation of trade secrets, breach of contract, and conspiracy. Mr. Hertz appeals from the dismissal of his claims for tortious interference with contract and tortious interference with prospective business advantage. Mr. Hertz additionally appeals from the denial of his motion to amend his complaint to include a claim for abuse of process.

We review the dismissal of these claims on a motion for summary judgment de novo. Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125, 1129 (10th Cir.2003). "[W]e also review de novo the District Court's interpretation of the substantive state law." Klein v. Grynberg, 44 F.3d 1497, 1506 (10th Cir.1995). Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "In our review, we examine the evidence and draw reasonable inferences therefrom in the light most favorable to the non-moving party." Harvey Barnett, 338 F.3d at 1129. "Although the movant must show the absence of a genuine issue of material fact, he or she need not negate the nonmovant's claim." Simms v. Okla. ex rel. Dep't of Mental Health & Substance Abuse Servs., 165 F.3d 1321, 1326 (10th Cir.1999). Once the movant carries this burden, the nonmoving party must "bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof." Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir.1996). An issue of material fact is genuine if the nonmovant presents facts that would allow a reasonable jury to find in favor of the nonmovant. Id.

A. Is the Production Process of 604AV a Trade Secret?

Luzenac accuses Mr. Hertz of misappropriating its trade secret in the production process of 604AV. Luzenac asserts that Mr. Hertz disclosed to IMI Fabi "Luzenac's entire formula and process for producing 604AV," in violation of the Colorado Uniform Trade Secrets Act ("UTSA"). Luzenac Br. at 18. The only question decided by the district court, and the only one we consider on appeal, is whether the production process qualifies as a trade secret. The UTSA defines "trade secret" as "any scientific or technical information, design, process, procedure, formula, [or] improvement ... which is secret and of value."² Colo.Rev.Stat. Ann. § 7-74-102(4). The essential test in Colorado for determining whether something is capable of protection as a trade secret was established in Colorado Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo. Ct.App.1990), and was utilized by this court in Harvey Barnett. See Harvey Barnett, 338 F.3d at 1129. Factors considered in determining whether a trade secret exists include:

(1) the extent to which the information is known outside the business; (2) the extent to which it is known to those inside the business, i.e., by the employees; (3) the precautions taken by the holder of the trade secret to guard the secrecy of the information; (4) the savings effected and the value to the holder in having the information as against competitors; (5) the amount of effort or money expended in obtaining and developing the information; and (6) the amount of time and expense it would take for others to acquire and duplicate the information.

Id. (citing Colo. Supply, 797 P.2d at 1306).

The district court applied the Colorado Supply test in assessing Luzenac's trade secret claim. It acknowledged that the last three factors could weigh in Luzenac's favor. Specifically relevant to the fourth factor—"the savings effected and the value to the holder in having the information as against competitors"—the district court noted, "[A] reasonable jury might find that, despite the plurality of comparable products competitive to Mistron 604AV, Luzenac's position was unique as a result of the information and expertise it developed." Aplt.App. Vol. IX, at 3002-03. The district court also determined:

The fifth and sixth Colorado Supply factors arguably weigh in Luzenac's favor. Luzenac...