Universal Engraving Inc v. Metal Magic Inc
| Decision Date | 29 November 2010 |
| Docket Number | No. CV-08-1944-PHX-GMS,CV-08-1944-PHX-GMS |
| Parties | Universal Engraving, Inc., Plaintiff, v. Metal Magic, Inc.; Charles R. Brown, Defendants. |
| Court | U.S. District Court — District of Arizona |
NOT FOR PUBLICATION
Pending before this Court are the following motions: (1) Motion for Summary Judgment on all counts filed by Defendants Metal Magic and Charles Brown ("Defendants") (Doc. 202) and (2) Motion for Partial Summary Judgment filed by Plaintiff Universal Engraving, Inc. ("UEI" or "Plaintiff). (Doc. 206). For the reasons set forth below, the Court grants in part and denies in part Defendants' Motion for Summary Judgment, and denies Plaintiffs Motion for Partial Summary Judgment.
Fred Duarte was employed with UEI for approximately fifteen years before he resigned on June 1, 2007. (Doc. 207, Ex. 2, 3). He was responsible for UEI's Research and Development Department until 2005 and continued to work for that department until his resignation. (Id., Ex. 4). While working for UEI, Duarte had access to confidential information and alleged UEI trade secrets. (Id., Ex. 8).
Before starting work with UEI, Duarte signed a Confidentiality and Proprietary Rights Agreement, and subsequently signed similar agreements during his employment. (Id., Ex. 6). At the beginning of January 2004, Duarte executed an Employment Agreement with UEI, which included a confidentiality provision and a non-competition and non-solicitation provision. (Id., Ex. 7).
In mid-April 2007, during a visit to Kansas City, Ted Geisler, a Metal Magic employee, met briefly with Duarte. Duarte had apparently posted his resume online and had expressed interest in moving back to Arizona. (Id., Ex. 10). A few days later, Duarte emailed Geisler to arrange a visit to the Metal Magic facility in early May. (Id., Ex.13, 14). During that visit, Duarte informed Geisler and Defendant Charles Brown, President of Metal Magic, that there was a non-competition provision in his employment agreement with UEI and gave them a copy of that agreement. (Id., Ex. 9). They met with an attorney the next day, and apparently the attorney told Duarte that the employment agreement was drafted too broadly and was thus unenforceable. (Id., Ex. 17, Doc. 208, Ex. 2, 11).
Brown offered Duarte a position as the company's first Manager of Research and Development shortly after the interview. (Doc. 218). In the email offering Duarte the job, Brown stated the Duarte was "the only candidate [he had] encountered with enough qualities to be successful at assuming" the responsibilities of "developing new methods and technology to benefit [Metal Magic's] customers." (Doc. 207, Ex. 18). Duarte accepted Brown's offer on May 12, 2007, and noted that "[g]iven the potential legalities with UEI, [he thought] it would be best to leave in early June and not risk having UEI suggest that [he] had used 2 months, knowing [he] was leaving, for gathering of any information." (Id., Ex.16). On June 1, 2007, Duarte sent an email to all UEI employees announcing his resignation. (Id., Ex. 3). Duarte began work at Metal Magic on June 13, 2007. (Doc. 219).
On August 9, 2007, UEI's attorney sent Duarte a letter informing him of the company's belief that he was working for Metal Magic in violation of his agreement with UEI and asking him to "cease and desist all violations" of that agreement. (Doc. 207, Ex. 22-Ex. D).1 UEI sent a similar letter to Charles Brown on the same day. (Id., Ex. 22, Ex. E). On August 20, 2007, an attorney from Zwillinger, Georgelos & Greek provided a joint response on behalf of Duarte and Metal Magic, denying that the agreement was enforceable; the letter stated that the firm was representing Duarte for purposes of that letter. (Doc. 206 at 5; Doc. 208, Ex. 11, Ex. C).
In September 2007, UEI filed a lawsuit against Duarte in the United States District Court for the District of Kansas. Universal Engraving, Inc. v. Frederick Duarte, PhD, Case No. 2:07-cv-2427-JAR-DJW. (Doc. 207, Ex. 22). UEI alleged claims of breach of contract, misappropriation of trade secrets, breach of duty of loyalty, and violation of the Computer Fraud and Abuse Act. UEI sought damages and injunctive relief. (Id.). After holding evidentiary hearings, the Kansas court granted Plaintiff's motion for preliminary injunction. (Id., Ex. 24).
In April 2008, Duarte filed a Notice of Intent to Default on the ground that he could no longer afford to pay his attorney Walter Brown. (Id., Ex. 28). On that same day, Walter Brown filed a Motion to Withdraw as Duarte's attorney. (Doc. 208, Ex. 30). That motion was granted on May 2, 2008. (Doc. 207, Ex. 31). Walter Brown re-entered his appearance to defend Duarte's deposition on June 2, 2008; he did not file a motion to withdraw as counsel following the deposition. (Doc. 207).
On October 10, 2008, the Kansas court granted UEI's Motion for Summary Judgment on Count I of the Complaint-Breach of Contract. (Id., Ex. 36). In reviewing the breach of contract claim, the court noted that Duarte had conceded that there was a contract; that he received consideration; and that he breached that contract. (Doc. 208, Ex. 27). Because the court found that UEI suffered damages as a result of that breach, it held that summary judgment was warranted. (Id.). The court also noted that it had the authority to modify the terms of the contract to ensure that the temporal scope of the agreement was reasonable, and thus amended the employment agreement to restrict Duarte's employment with a competitor world-wide for two years. (Doc. 208, Ex. 27). The Kansas court later awarded damages to UEI for the misappropriation of trade secrets and breach of loyalty and granted UEI injunctive relief for the breach of contract claim. (Doc. 207, Ex. 5). Duarte was not present or represented at that hearing. (Doc. 208).
On October 22, 2008, UEI filed this action against Metal Magic and Charles Brown, alleging misappropriation of trade secrets, tortious interference, tort of another, unfair competition, participation in/aiding and abetting a breach of fiduciary duty, and conspiracy. (Doc. 1).
Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates "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)(2). Substantive law determines which facts are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A fact issue is genuine 'if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). When the nonmoving party "bear[s] the burden of proof at trial as to an element essential to its case, and that party fails to make a showing sufficient to establish a genuine dispute of fact with respect to the existence of that element, then summary judgment is appropriate." Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
Defendants seek summary judgment on all counts raised in Plaintiff's complaint.
IMAX Corp. v. Cinema Tech., Inc., 152 F.3d 1161, 1164-65 (9th Cir. 1998) (internal quotations marks and citations omitted).
Arizona has adopted the Uniform Trade Secrets Act, "which codifies the basic principles of common-law trade-secret protection, to govern the resolution of trade-secret issues." Enter. Leasing Co. of Phoenix v. Ehmke, 197 Ariz. 144, 148, 3 P.3d 1064, 1068 (Ct. App. 1999). In the absence of controlling authority on an issue related to trade secrets, Arizona relies on the Restatement of Torts. Id. Under the Arizona Uniform Trade Secrets Act ("AUTSA"), a "trade secret" is "information, including a formula, pattern, compilation, program, device, method, technique or process" that "[d]erives independent economic value... from not being generally known to" or "readily ascertainable", and whose owner has made reasonable efforts to maintain its secrecy. A.R.S. § 44-401(4) (2010). Ehmke, 197 Ariz. at 148, 3 P.3d at 1068 (internal citations omitted). Under Arizona law, "matters of general knowledge cannot be appropriated as secret, [however,] a trade secret may consist of a combination of elements even though each individual component may be a matter of common knowledge." Id. at 149, 3 P.3d at 1069.
Defendants argue that UEI cannot establish that the identified information and processes qualify as trade secrets because all are generally known or readily ascertainable in the industry. (Doc. 202). Specifically, they argue that all fall within one or more of the following categories: (1) information or processes readily ascertainable in written materials published by vendors and trade associations in the industry; (2) information or processes already known and utilized by Defendants prior to their association with Duarte; (3) the identity of vendors...
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