OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS
THIS MATTER comes before the Court pursuant to the Defendants’ Motion to Dismiss (# 47), the Plaintiffs’ response (# 50), and the Defendants’ reply (# 55); and the Defendants Objections (# 83) to the Magistrate Judge’s July 18, 2011 Minute Order (# 70) and ensuing Protective Order (# 82) granting the Plaintiffs’ Motion for Entry of a Protective Order (#62), the Plaintiffs’ response (# 84), and the Defendants’ reply (# 88).
FACTS
Although the Amended Complaint (# 33) contains some 400 allegations spread over 87 pages, the underlying allegations can be simplified. The Plaintiffs (collectively, “L3”) are engaged in the business or providing machinery and services designed to test the protective measures found in electronic equipment against damage from electromagnetic pulses. L3 alleges that, over the years, its employees — including some of the individual Defendants herein who were formerly employed by L3 — invented new testing equipment, improved on existing equipment, and otherwise devised new and more effective ways of conducting such testing. L3 alleges that each of these inventions or improvements, along with other general business information such as customer lists and pricing data, constitute trade secrets belonging to L3. It contends that each L3 employee, including the individual Defendants herein, contractually agree to maintain the confidentiality of L3’s trade secret information.
In July 2009, although it was not yet operational, Jaxon succeeded in obtaining certain testing contracts from Serco, one of L3’s major clients. L3 contends that these contracts were awarded as the result of collusion between Mr. "White and Donald Eich, a Serco representative with whom Mr. White had worked closely while employed at L3. According to L3, Mr. White and Mr. Eich conspired to ensure that the contracts that were awarded to Jaxon were either drafted in such a way that L3 would be unable to meaningfully compete for them, or that L3 simply was not notified about the opportunity to bid. Jaxon’s bids were prepared by Mr. White and relied heavily on L3’s trade secret information. The Amended Complaint alleges that Jaxon continues to compete with L3 by improperly using L3’s trade secret information.
Much like the answer to a law school examination, L3’s 24-claim Amended Complaint asserts a wide variety of legal theories for recovery on these facts: (i) violation of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. § 1961 et seq., in that Jaxon (and its participation with certain individual Defendants) constitutes an “enterprise,” in furtherance of which the various Defendants have engaged in a pattern of predicate criminal offenses of mail and wire fraud; (ii) conspiracy to violate RICO, based on essentially the same facts; (iii) violation of the Colorado Organized Crime Control Act (“COCCA”), C.R.S. § 18-17-101 et seq.; and (iv) conspiracy to violate COCCA, all based on essentially the same facts as the RICO claim(s); (v) and (vi) patent infringement, apparently asserted only against Jaxon, on the grounds that Jaxon is infringing upon two patents owned by L3; (vii) violation of the Colorado Uniform Trade Secrets Act, C.R.S. § 7-74-101 et seq., against all Defendants; (viii)-(xi) common-law breach of contract claims against the individual Defendants, with each separate claim relating to different contracts that each individual Defendant entered into with L3; (xii) common-law conversion against all Defendants, insofar as each Defendant allegedly converted non-trade secret physical property belonging to L3; (xiii) a claim sounding in false advertising, in violation of the Lanham Act, 15 U.S.C. § 1125(a), against all Defendants insofar as the Defendants solicited contracts from Serco and others by representing that Jaxon was capable of legally providing the testing services it was bidding for when, in fact, it was unable to do so without improperly employing L3’s trade secrets; (xiv) a common-law claim for tortious interference with prospective business advantage against all Defendants, insofar as the Defendants improperly solicited contracts from Serco that would otherwise have been awarded to L3; (xv) a common-law claim for breach of fiduciary duty against those Defendants who were formerly employed by L3; (xvi)
The Defendants move (#47) to dismiss the Amended Complaint or, in the alternative, for a more definite statement. Rather than to summarize the arguments contained in the Defendants’ 53-page motion and 34-page supporting brief in this portion of the Order, the Court will defer the discussion of the issues raised by the Defendants to the appropriate portions of the analysis.
Notwithstanding the pending Motion to Dismiss, the parties proceeded to commence discovery. On July 1, 2011, L3 moved (#62) for a protective order, explaining that both sides were unwilling to produce business, technical, financial, and trade secret discovery, among other things, without the safety of a protective order that would prevent undue dissemination of such material. The motion recited that the parties had generally agreed upon a protective order containing two tiers of confidentiality — a tier for simple “confidential” information and a second tier that would be designated “attorneys’ eyes only” — but the parties could not agree as to whether certain categories of individuals would be given access to one or both tiers. As relevant here, the parties agreed that each side would appoint one “Technical Advisor” that would be granted access to certain material for the purpose of providing interpretation and advice to counsel. However, the Defendants objected to two aspects of this proposal: (i) that the Technical Advisors would be granted access to material designated as “attorneys’ eyes only,” and (ii) the fact that L3 intended to designate Charles Crain, a current employee of L3, as its advisor, rather than a disinterested non-employee. L3’s motion sought resolution of whether Mr. Crain could serve as L3’s Technical Advisor and, if so, whether Mr. Crain would be given access to “attorneys’ eyes only” material.
The Court referred L3’s motion to the Magistrate Judge and on July 18, 2011, following a hearing, the Magistrate Judge entered a Minute Order (# 70) granting, in part, L3’s motion. Specifically, the Magistrate Judge ruled that Mr. Crain would be permitted, as L3’s Technical Advisor, to view “attorneys’ eyes only” material, but that his access to such material would be limited to “any successful bids made by Defendants prior to November 23, 2010, the date this matter was filed.” As directed by the Magistrate Judge, the parties drafted and submitted a proposed Protec
On August 11, 2011, the Defendants filed Objections (# 83) pursuant to Fed.R.Civ.P. 72(a) to the Magistrate Judge’s ruling, arguing: (i) the Magistrate Judge erred in finding that L3 met its burden of showing that Mr. Crain, as a current L3 employee, was necessary as a Technical Advisor rather than available non-employees with sufficient knowledge; (ii) relatedly, that Mr. Crain’s access to Jaxon’s confidential information creates a risk of competitive harm to Jaxon; and (iii) that in the alternative to excluding Mr. Crain as an Advisor entirely, the Court should limit his access to technical information, and preclude him from having access to Jaxon’s financial and pricing information.
ANALYSIS
A. Motion to Dismiss
1. Standard of review
Most of the Defendants seek dismissal of the claims against them for failure to state a claim under Fed.R.Civ.P. 12(b)(6), among other grounds. In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all well-plead allegations in the Complaint as true and view those allegations in the light most favorable to the nonmoving party. Stidham v. Peace Officer Standards and Training,
With regard to what must be pled to avoid dismissal, the Supreme Court in Ashcroft v. Iqbal,
Iqbal suggests that one way for the Court to proceed when considering a Rule 12(b)(6) motion is for the Court to “identify!] pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.”
The Court first turns to the Defendants’ challenges to the sufficiency of the pleading of L3’s RICO and COCCA claims. The two statutes are similar and are generally construed according to similar principles. Tara Woods Ltd. Partnership v. Fannie Mae,
The Defendants first challenge the sufficiency of L3’s allegations of predicate acts of “racketeering activity.” Under RICO, acts which would constitute criminal mail or wire fraud, in violation of 18 U.S.C. § 1341 or § 1343, can constitute “racketeering activity.” 18 U.S.C. § 1961(1) (defining “racketeering activity”). To plead these predicate acts, L3 must plead facts showing: (i) Defendants engaged in a scheme to defraud by means of false pretenses; (ii) the Defendants acted with the requisite intent to defraud; and (iii) the scheme contemplated the use of mail or wire transactions. Burnett v. Amrein,
L3 attempts to itemize the specific allegations of mail and wire fraud in paragraph 183 of the Amended Complaint. With regard to mail fraud allegations, L3 contends that, “by way of illustration and without limitation,” the following acts by unspecified Defendants constituted acts of mail fraud: (i) “sending by mail equipment purchase orders and/or communications regarding such orders for equipment, using L-3’s money, under L-3’s contracts, for equipment that Defendants conspired to steal for themselves ... ”; and (ii) “transmitting bids and/or communications associated with such bids by mail” for various contracts Jaxon received from Serco, “using and including stolen L-3 trade secrets but falsely representing that such proprietary information was owned by Jaxon.”
The Court will assume, for the moment, that L3’s general allegations concerning the object and means of the Defendants’ scheme to obtain equipment and information from L3 to use for Jaxon is sufficient to plead the rough contours of the basic elements of a claim of mail fraud. But the Court has some reservations that the Amended Complaint pleads the specific instances of fraud with the requisite level of particularity. According to the Amended Complaint, the Defendants’ acts of mail fraud fall into two categories: (i) ordering equipment through L3 with the intent to divert it to Jaxon, and (ii) transmitting bid to Serco. When describing these events in the Amended Complaint, L3 fails to specifically identify “the time, place, and contents of the false representation, the identity of the party making the false statement, and the consequences thereof.”
For example, in paragraph 93(a), L3 alleges that, “on or about April 22, 2008,” Defendant Randall White “began approving Purchase Requisitions spending L-3 funds on test equipment ... for eventual transfer to Jaxon.” This allegation is insufficient to plead an act of mail fraud with the requisite particularity for several reasons. First, it appears to describe a
Similarly, paragraph 99 of the Amended Complaint, which alleges that over a period of time from April to December 2008, several Defendants “orchestrated the purchase of over 500 parts and pieces of equipment,” presumably with the intent to divert it to Jaxon. But these generalized allegations are insufficient to identify the fraudulent representations or omissions made by the Defendants, much less the dates and specific makers of the fraudulent statements. The Court has canvassed the other allegations in the Amended Complaint that relate to the submission of purchase requisitions through L3, and finds no allegations therein with the necessary level of particularity that are sufficient to plead a mail fraud scheme.
Turning then to the second alleged form of mail fraud — the submission of bids by Jaxon — the same issues are evident. Although the Amended Complaint identifies the bids by the contract number for orders issued to Jaxon by Serco, the Amended Complaint gives no indication of the date of any alleged fraudulent bid, the identity of the person creating the bid, or the specific fraudulent statement contained in the bid. At best, L3 pleads only that the bids “expressly or impliedly represented that trade secrets of L-3 were actually proprietary information owned by Jaxon,” but L3 does not describe with any detail the particular content of the bids that “expressly or impliedly” constituted this representation.
Accordingly, the Court agrees with the Defendants that L3 has failed to allege the predicate acts of mail fraud with the degree of particularity required by Rule 9(b).
Turning then to L3’s allegations of wire fraud, L3 again describes the alleged wire fraud schemes encompassing a few general categories of actions: (i) Randall White “signing L-3 Purchase Requisitions to purchase equipment” (and then “falsely representing the equipment as belonging to AFSPC,” ’ a different entity) and dispatching those requisitions by wire; (ii) transmitting bids to Serco by wire; and (iii) “making payments for equipment and/or receipt of payments” from Serco, again by wire. The Court will not belabor the analysis by repeating its findings above: that the Amended Complaint fails to adequately identify the particulars of any fraudulent statement or omission by Mr. White with regard to any of the referenced categories of acts of wire fraud. In no instance has L3 specifically identified the time and specific false contents of any wire communication made by Mr. White.
The Defendants argue that the Court should “relax” the particularity requirements of Rule 9(b) because “the facts are uniquely within the defendants’ knowledge.” Citing Scheidt v. Klein,
Here, the Court has grave doubt that at least some of the facts underlying L3’s allegations of mail and wire fraud are “peculiarly within” the Defendants’ knowledge, such that L3 could instead plead the relevant particulars upon information and belief instead of actual knowledge. Because a major component of the fraudulent schemes involved the Defendants using L3 purchase requisitions to obtain the purloined equipment, it would reasonably follow that L3 would have copies of those requisitions or other records that would reveal what, if any, false statements or omissions were contained therein. Assuming, without necessarily finding, that the contents of bids submitted by Jaxon to Serco would be unknown to L3, such that L3 could instead plead the fraudulent nature of such bids “upon information and belief,” Scheldt nevertheless requires that L3 make clear the factual basis for L3’s belief as to the contents of such bids. L3 has not made any such showing regarding the basis of its belief that Jaxon’s bids to Serco contained false representations or omissions.
L3 further argues that, under U.S. v. Kennedy,
Kennedy provides no real assistance to L3 in these circumstances. In Kennedy, the defendant’s conviction was affirmed because there was evidence that he used the mails in furtherance of a scheme that involved him making false representations to somebody, even if that somebody was not one of the victims who testified. Here, L3 has not sufficiently alleged with sufficient particularity a false representation made by the Defendants to anybody. L3’s reading of Kennedy to require only the pleading of a scheme, not any false representations, is equally unavailing. As explained there, the crime of mail fraud may exist where a defendant either formulates a “scheme to defraud” or a “scheme to obtain money or property by means of false statements.” Id. at 1476, discussing U.S. v. Cronic,
To the extent L3 was instead relying on the “scheme to defraud” component of 18 U.S.C. § 1341, that theory raises more difficult questions. Cronic explained that, unlike schemes premised on false representations, a “scheme to defraud” was one in which a person defrauded another, yet did so without actually making any affirmative misrepresentation.
With regard to the equipment-based contentions, these are contentions that sound in the simple tort of conversion: L3 purchased and owned certain equipment, and the Defendants misappropriated that equipment for their own benefit. The means by which the Defendants caused L3 to acquire the equipment is largely irrelevant in such circumstances — whether they resorted to omissions to cause L3 to buy more equipment than it needed, or whether they simply pilfered existing stores of equipment in L3 stockrooms is largely immaterial, as the relevant conduct is the Defendants’ theft, not L3’s acquisition of the material. Perhaps a different analysis might be appropriate if the allegations were that the Defendants somehow convicted L3 that Jaxon was a subcontractor or corporate subdivision and induced L3 to purchase the equipment for Jaxon’s benefit, but the facts alleged herein are far less subtle. Thus, when the focus is on the Defendants’ alleged theft of L3’s equipment, it is difficult to conceive of how a “scheme to defraud” exists, rather than a simple “scheme to convert.” In such circumstances, the requisite elements of mail fraud are not present, thus failing to provide a predicate act for a RICO/COCCA claim.
With regard to the bidding-based contentions, the analysis is slightly more abstract. As the Court understands L3’s theory, Jaxon defrauded Serco by failing to note in its bid documents that Jaxon would be performing the services it was proposing by using L3’s trade secrets. But the Amended Complaint gives no indication that such an omission would have been considered material by Serco, such that it was “defrauded” by the omission of such information. The Amended Complaint appears to allege that Serco was merely contracting for testing of its electric equipment according to certain specifications, and there is no indication that Serco was at all concerned whether Jaxon performed that testing using its own proprietary methods or whether it did so using testing methods it improperly obtained from others, so long as the proper testing was done. Thus, it is difficult to envision how, under the allegations contained here, the Defendants engaged in any “scheme to defraud” Serco. This theory only becomes more troubling when one recognizes that, according to the Amended Complaint, Mr. Eich, one of Serco’s representatives, was fully aware of the Defendants’ intention to set up Jaxon by improperly using L3’s trade secrets. Amended Complaint, ¶ 92 (Mr. White “worked with Donald Eich ... to obtain [his] assurances that if he were to create a competing entity and steal L-3’s intellectual property ... that he would be awarded contracts ... through Serco.”) Thus, the Court cannot find that L3 has adequately alleged mail or wire fraud claims under a “scheme to defraud” theory.
Accordingly, the Court finds that L3 has failed to adequately plead the RICO/COC-
8. Patent infringement claims
With regard to the two claims for patent infringement, the Defendants contend that L3 has failed to adequately plead the means by which the Defendants’ products infringe upon L3’s patents. To plead a claim for patent infringement, a plaintiff must allege facts showing that he owns the patent in question; that the defendant “has been infringing the patent by making, selling, and using the device embodying the patent”; and that the plaintiff has given the defendant notice of its infringement. McZeal v. Sprint Nextel Corp.,
Here, the Court finds that L3 has sufficiently identified the patents allegedly infringed and has specifically identified specific devices made or used by Jaxon that result in such infringement (the “Automated EM Barrier Monitoring Systems Equipment” and “short pulse and intermediate pulse transient pulse generators for Pulse Current Injection”). Certainly, L3’s Amended Complaint is no model of specificity and affords little more notice beyond simply identifying the alleged infringing devices, but the Court finds that this is sufficient under the circumstances to put the Defendants on notice. Any further elucidation as to precisely how L3 contends that Jaxon’s devices infringe upon L3’s patents may be had through discovery.
4. Uniform Trade Secret Act
The Defendants argue that L3’s claim under the Colorado Uniform Trade Secrets Act should be dismissed because the claim “fails to identify sufficiently any alleged trade secrets, and fails to plead which Defendants allegedly misappropriated such alleged trade secrets.”
The Court finds that the Amended Complaint sufficiently discloses some of the trade secrets involved here with specificity: information relating to “the selection and combination of switches, capacitors, inductors and resistors in pulse forming networks” for various pulser machines; information relating to “antenna selection, design, and assembly”; software programs “for controlling, capturing, and compiling raw CWI test data”; customer lists of purchasers of HEMP technology; pricing templates; vendor lists; and drawings and designs of electromagnetic enclosures, among other things. Although the Defendants would certainly prefer that L3 be even more specific in identifying each particular allegedly misappropriated trade secret, and that it be prohibited from referencing other alleged trade secrets in more general terms, the Court cannot say that the Amended Complaint is so bereft of
Turning to the Defendants’ contentions that the Amended Complaint fails to identify which Defendants allegedly misappropriated the trade secrets, the Court disagrees. The Amended Complaint specifically lists each individual Defendant and describes, in some detail, certain confidential or proprietary L3 materials that each Defendant improperly obtained, copied, or otherwise disseminated. The Court cannot say that these descriptions are so bereft of detail that the Defendants are deprived of meaningful notice of the allegations against them.
5. Breach of contract claims
The Defendants contend that, with regard to each of the breach of contract claims against them, L3 fails to adequately allege that those contracts were supported by consideration.
The Colorado Supreme Court has rejected the notion that a complaint alleging breach of contract must necessarily recite the consideration securing that agreement or else face dismissal. Smith v. Mills,
Separately, the Defendants allege that L3’s breach of contract claim against Defendant Lubell fails to state a claim because the agreement in question between Mr. Lubell and L3 does not preclude Mr. Lubell from offering consulting services to third parties outside the contractually-defined areas of exclusivity, and the Amended Complaint does not specifically allege that the services Mr. Lubell supplied to Jaxon were within those areas of exclusivity. Although the Defendants are, strictly-speaking, correct on this point, a reasonable inference to be drawn from the Amended Complaint is that L3 is asserting that Mr. Lubell’s services to Jaxon are within the areas in which he promised exclusive loyalty to L3. Whether or not this inference is ultimately supported by the record is a question that must await summary judgment, but for pleading purposes, the Court finds that the breach of contract claim against Mr. Lubell is sufficient.
6. Conversion claim
To state a claim for conversion under Colorado law, L3 must allege that: (i) a defendant exercised dominion or control over property; (ii) that property belonged to L3; (iii) the defendant’s exercise of control was unauthorized; (iv) L3 demanded return of the property; and (v) the defendant refused to return it. See e.g. Glenn Arms Assocs. v. Century Mortg. and Investment Corp.,
First, the Defendants contend that L3 has not specifically identified the allegedly converted property, instead resorting to a contention that such property “includes] items such as: computers, cameras, business forms, templates, images, illustrations, pictures, notes, notebooks, and other organizational mechanisms, and analysis and comparison tools.” The De
Next, the Defendants contend that the Amended Complaint does not specify which Defendant converted which items of property, nor does it plead facts sufficient to demonstrate that each Defendant lacked any legal right to control the disposition of the property in question. The Court finds that the Amended Complaint adequately alleges specific behavior on the part of some Defendants, including Randall White, Scott White, and Susan Rettig as being involved with acts to obtain, sequester, and ultimately remove items of equipment belonging to L3. The Amended Complaint does not contain similar allegations against other individual Defendants, but at this point, the Court is not prepared to simply dismiss the conversion claim as against other Defendants. It appears that L3’s conversion claim is intended to apply to materials other than those considered to be “trade secrets,” and where some other Defendants are accused of obtaining or retaining other items of property, it is not always clear whether that property is alleged to be a “trade secret” or physical property subject to the conversion claim. This is an area in which discovery and the strictures of Rule 11 provide adequate protection to those Defendants against whom no cognizable conversion claim might exist. If, at the close of discovery, L3 is unable to make a plausible factual showing that a given Defendant converted any physical property belonging to L3 and L3 refuses to either stipulate or otherwise make clear that the conversion claim is not asserted against that Defendant, the appropriate Defendant may not only seek summary judgment on the conversion claim but may also request sanctions against L3 pursuant to Fed.R.Civ.P. 11.
As to the remaining elements that the Defendants challenge — the sufficiency of allegations as to L3’s demand for return of the property and its suffering of damages as a result, the Court finds that to the extent no express allegation to these effects is present, such allegations are a permissible inference to be drawn from the facts alleged in the Amended Complaint. Accordingly, the Court denies the Defendants’ motion to dismiss the conversion claim.
7. Lanham Act/false advertising claim
To state a claim for false advertising under the Lanham Act, L3 must allege: (i) that Jaxon made a material false or misleading representation in connection with the promotion of its product or service; (ii) that statement was made in interstate commerce; (iii) the false statement was likely to cause confusion or mistake as to the characteristics of its goods or services; and (iv) the statement resulted in injury to L3. Sally Beauty Co. v. Beautyco, Inc.,
The Defendants contend that this claim should be dismissed against certain individual Defendants — Charles Rettig, Scott White, James Youngman, Jerry Lubell, Kelly Rice, and John McClure — on the grounds that there are no allegations that these Defendants participated in any statements promoting Jaxon and that the Lanham Act does not recognize imputed or aiding/abetting liability for false advertising. Citing Electronic Lab. Supply Co. v. Cullen,
Because Electronic Lab. Supply was specifically interpreting terms in a statutory section different from the one presented here, its outcome is not controlling. This is particularly true where the narrowness of the wrongful seizure remedy contemplated by 15 U.S.C. § 1116 stands in sharp contrast to the relatively broad scope of a Lanham Act false advertising claim under 15 U.S.C. § 1125(a). The former limits itself to the “applicant” for the seizure order, whereas the latter imposes liability on “any person who, on or in connection with any goods or services,” uses misleading representations about a product. Given the far broader reach of § 1125(a) than § 1116, this Court is not convinced that the outcome in Electronic Lab. Supply is persuasive here.
At the same time, Haugen is also off-point. The cited opinion is the end of that case’s long journey through the court system, and is primarily concerned with questions of whether the trial court properly applied the 10th Circuit’s orders on remand from a prior appeal. To fully appreciate the import of that decision, the Court must first explain the proceedings that preceded it. The plaintiff, a manufacturer of soap products, sued certain distributors of its competitor, Amway, for false advertising under the Lanham Act (along with certain tort claims under state law), alleging that the distributors had been spreading false rumors associating the plaintiff with Satanism. The plaintiff also sought to hold Amway liable for that conduct under a aiding and abetting theory. The trial court initially granted summary judgment to the defendants on the grounds that the rumors did not relate to the quality of the plaintiffs goods and services itself, but on appeal, the 10th Circuit reversed, finding that the Lanham Act also prohibited false advertising relating to a competitor’s “commercial activities,” and the rumors arguably implicated that standard. Proctor & Gamble Co. v. Haugen,
Upon the remand to reconsider the Lanham Act claims, the trial court noted that the plaintiff was now asserting that “the vicarious liability standards under the Lanham Act are less stringent than under Utah' common law,” such that the 10th Circuit’s determination of vicarious liability under state law did not control the argument as to whether such liability existed with regard to the Lanham Act claim. Procter & Gamble Co. v. Haugen,
This, then, sets the stage for - the Haugen opinion cited by the Defendants here. Proctor & Gamble appealed the trial court’s decision again, arguing that the trial- court erred in conforming its vicarious liability analysis under the Lanham Act to the analysis of vicarious liability under Utah state law, as affirmed by the Court of Appeals. The 10th Circuit observed that, even at that advanced stage,Proctor & Gamble “identifies no discrete distinctions between Utah’s vicarious liability standards and those of the Lanham Act — apart from its vague insistence that the Third Circuit’s holding in AT & T v. Winback and Conserve [Program, Inc.,
Arguably, Haugen could be read to be an endorsement by the 10th Circuit of the concept of vicarious liability in Lanham Act cases, at least to the extent that AT & T recognized it to exist. But this then requires an examination of the scope of the AT & T case. There, AT & T sued the defendant, who purchased services from AT & T in bulk and resold them to smaller customers, alleging that the defendant falsely represented to customers that it was affiliated with AT & T. The defendant argued that any misrepresentations were made by independent sales representatives
Accordingly, the Court finds that Procter• & Gamble does nothing more than adopt the contours of AT & T, and in so doing, approves only of the importation of agency theory into Lanham Act infringement clams, but it does not purport to approve of aiding/abetting liability under the Act. The Defendants here cite to no other authority for the proposition that vicarious liability for violations of 15 U.S.C. § 1125(a) extends beyond the boundaries of standard agency theory, and thus, the Court finds that on the record presented here, L3’s Lanham Act claims against the various employees of Jaxon must stand or fall based on the extent to which the Amended Complaint alleges sufficient facts to show that these employees acted as agents of Jaxon in bringing about the alleged false advertising.
Expressed in these terms, it is apparent that L3’s allegations are insufficient. L3’s Lanham Act claims against the employees of Jaxon does not allege, as an agency-based claim typically would, that an act of false advertising by a subordinate permits liability to be escalated up the chain to a person who allegedly authorized that act; rather, L3’s theory of liability seeks to push liability downward, exposing low-level employees in Jaxon to liability for conduct engaged in by their superiors, for which they had no alleged ability to control or direct. L3 argues that these Defendants transferred L3’s trade secrets to Jaxon “with actual or constructive knowledge that Jaxon or others would misrepresent the technology as being owned by Jaxon,” but such an argument addressing only an aiding/abetting theory, not an agency theory. Because the Amended Complaint fails to allege facts sufficient to impose Lanham Act liability on these Defendants under an agency theory, the Lanham Act claims are dismissed as against Charles Rettig, Scott White, James Young-man, Jerry Lubell, Kelly Rice, and John McClure.
The Defendants also make a perfunctory argument that L3 has failed to adequately allege that it is likely to be injured by any misrepresentation made by Jaxon in connection with the sale of its products. The Court finds that a reasonable inference to be drawn from the allegations in the Amended Complaint is that Jaxon is only able to compete with L3 for contracts by unlawfully exploiting L3’s trade secrets, and that if Jaxon were prevented from using such secrets, it would not be able to advertise and bid for the same contracts as L3. This is sufficient, at this early stage of the litigation, to satisfy the injury element of the claim.
8. Tortious interference claim
To assert a claim for tortious interference with prospective economic advantage, L3 must allege: (i) that the De
The Defendants contend that L3 has not alleged that L3 “does not allege that it would have obtained (or even that it submitted bids regarding) the business purportedly lost,” and that it merely alleges that “it had a right to continued business with Serco and unspecified other third-party companies.” This is an overly-cramped reading of the Amended Complaint. L3 alleges that it was the incumbent provider of services to Serco, and that the Defendants “rigged” the bidding on contracts to continue those services in such a way that L3 would either not be invited to bid on them or were given incomplete information upon which to submit a bid. A reasonable reading of the Amended Complaint thus suggests that the contracts allegedly obtained by Jaxon were for services that L3 was currently providing to Serco and, presumably, would have continued to provide had the Defendants not induced Serco to manipulate the bidding on them. This is sufficient to state a claim for tortious interference.
The Defendants argue that cases such as Memorial Gardens, Inc. v. Olympian Sales & Mgmt. Consultants, Inc.,
The Defendants also complain that L3 does not adequately allege which Defendants allegedly interfered with L3’s prospective economic advantage. This complaint is well-taken, insofar as the statement of the claim refers only generally to “Defendants.” In its response, L3 purports to itemize the particular conduct by each Defendant that allegedly gives rise to the claim. There can be little dispute that, under the facts as alleged, Jaxon and Randall White were the primary architects of the “bid-rigging” scheme that underlies this claim. There are also sufficient allegations in the Amended Complaint that Susan Retting was “involved with preparing [a] proposal” to Serco for the contracts at issue here, making the claim cognizable against her. However, L3’s allegations with regard to the remaining Defendants merely contend that these Defendants participated in stealing trade secret information for Jaxon, not in assisting in rigging the bidding process with Serco to Jaxon’s benefit. Accordingly, the tortious interference claim is dismissed against all Defendants other than Jaxon, Randall White, and Susan Rettig.
9. Breach of fiduciary duty claim
To plead a common-law claim for breach of fiduciary duty,
The Defendants argue that, to the extent their alleged fiduciary duties to L3 arose out of their signing of various contracts promising confidentiality and non-dissemination of L3’s trade secrets, the damages associated with the breach of such fiduciary duties are co-terminus with the damages flowing from their breaches of those contracts, such that the economic loss rule prohibits the fiduciary duty claim. L3 responds that, wholly apart from their contractual obligations, the Defendants owed common-law fiduciary duties arising from their employment with L3 and their access to L3’s confidential information. Cases such as Jet Courier recognize such a common-law duty of loyalty by employees arising independently from any contractual agreement between the parties, preventing the employees from making certain types of preparations to compete against their employer while remaining in that employ. Those are precisely the sorts of allegations contained in the Amended Complaint, and thus, the Court finds that the economic loss rule does not preclude any breach of fiduciary duty or similar claim by L3.
10. Unjust enrichment claim
The Court need not specifically address the Defendants’ objections to L3’s unjust enrichment claim, as it is clear to the Court that the allegations state a cognizable unjust enrichment claim against each Defendant. With regard to the Defendants’ argument that C.R.S. § 7-74-108 preempts any tort claims of unjust enrichment premised upon claims of misappropriated trade secrets, the Court finds the reasoning in Powell Products, Inc. v. Marks,
11. Civil conspiracy claim
The Court also summarily rejects L3’s arguments regarding alleged defects in the pleading of L3’s civil conspiracy claim against the Defendants. Taken in the light most favorable to L3, with reasonable inferences drawn in its favor, the Amended Complaint adequately alleges that each Defendant knowingly entered into an agreement to form an entity to compete with L3 and to employ unlawful means — most significantly, the improper use of L3’s confidential information — to further that agreement. The fact that not all Defendants are alleged to have engaged in unlawful conduct in furtherance of the conspiracy — e.g. the allegation that Joni White merely incorporated Jaxon and served as an officer of it — is irrelevant; it is axiomatic that an individual member of a
12. Civil theft claim
As with the conversion claim, the Court finds that the allegations in the Amended Complaint, coupled with reasonable inferences to be drawn therefrom, are sufficient to allege the necessary elements of this claim against all Defendants. To the extent L3 is ultimately unable to establish a colorable factual predicate to assert this claim against a given Defendant and refuses to concede the claim against that Defendant, the Court will entertain a properly-supported motion for sanctions.
13. Fraud claims
L3 alleges claims of common-law fraud against each of the former employee Defendants, allegedly arising from false claims on those employees’ timesheets that they were performing work for L3 when, in fact, they were performing work on behalf of Jaxon. The Defendants contend that L3 has not pled the requisite details of the alleged fraudulent statements with the level of specificity required by Rule 9(b).
The Court finds that the Amended Complaint is sufficiently detailed on this point to meet the rule’s requirements. The Amended Complaint adequately describes the substance, if not necessarily the precise words, of the misrepresentation— namely, the contention that the Defendants were performing work for L3 at a given time when, in reality, they were not. The failure of the Amended Complaint to supply the dates of these representations is unfortunate, but does not render the allegations so non-specific that the Defendants cannot reasonably respond to them. The Court readily expects that, once L3 is able to ascertain through discovery the particular dates upon which the Defendants performed particular Jaxon-related acts on L3’s time, it will be able to specifically point the Defendants to the corresponding time sheets. Accordingly, the Court declines to dismiss the fraud claims.
14. Sherman Act claim
To allege a violation of the Sherman Act, 15 U.S.C. § 1, L3 must allege: (i) a conspiracy or agreement among two or more independent actors; and (ii) that agreement unreasonably restrains trade in commerce. TV Communications Network, Inc. v. Turner Network Television, Inc.,
There are some restraints of trade that have such pernicious effects or that so lack redeeming value that they are considered per se unreasonable; all other restraints are subject to a more complex “rule of reason.” Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co.,
The Court has carefully reviewed a wealth of antitrust eases for a more factually-similar paradigm, and finds one described as “sham bidding” in Sitkin Smelting & Refining Co. v. FMC Corp.,
Ultimately accepting the plaintiffs label of the conduct as “sham bidding,” the court then turned to the question of whether such conduct constituted an unreasonable restraint of trade. Finding that it did not, the court focused on the fact that “all but one of the bidders were destined to come up ‘empty-handed’ with or without the sham bidding,” and the fact that the defendant elected to favor Krentzman over the plaintiff was of no antitrust significance, “so long as its conduct has no market control or monopolistic purpose or effect.” Id. at 447. The court noted that “there was no evidence of an intent [by the defendant and Krentzman] to affect the quantity or quality of any goods or services,” nor any evidence that the agreement influenced “prices, quantity, or quality in the scrap metal market.” Id. It acknowledged that sham bidding might be “reprehensible under some moral or ethical standard or even illegal under some other law,” but that the Sherman Act “is neither a lowest-responsible-bidder statute nor a panacea for all business affronts which seem to fit nowhere else.” Id. at 447-48. ■
A similar analysis applies here. L3’s allegations simply describe an agreement between a purchaser and one of its suppliers to favor that supplier’s bids over those of disfavored competitors. L3 does not allege that Jaxon was attempting via the agreement to manipulate the market price for the testing services; rather, it was convincing Serco to award contracts to Jaxon regardless of the fact that bidders like L3 (in those instances in which L3 submitted a bid) were already offering to provide the services at lower prices. In essence, Jaxon convinced Serco to act against its own best interests and select a higher-priced bidder, just as the defendant in Sitkin chose to ignore Sitkin’s lower-priced bid and instead agreed to purchase the same service from the higher-priced Krentzman. As Sitkin notes, the Sherman
In any event, L3 has elected in both the Amended Complaint and in its response to argue that the alleged practices violate the Sherman Act because they constitute per se unlawful “bid rigging.” Because the Court finds that the allegations fail to amount to bid rigging, the Amended Complaint fails to state a Sherman Act claim.
Although the Court need not address the Sherman Act claim further, it also notes that the Defendants are correct in challenging the sufficiency of L3’s allegations of “antitrust injury.” To give rise to a cognizable antitrust claim, the injury claimed by the plaintiff must be an injury that poses an adverse effect to competition or consumers, not simply an injury to a competitor; that is, it must be an injury that flows from the “competition-reducing aspect or effect” of the Defendants’ behavior. Elliott Industries, Ltd. Partnership v. BP America Production Co.,
Here, the Amended Complaint alleges that the antitrust injury — the harm suffered by the “general public” is that “it resulted in the United States government having to pay more for services and product with regard to these Task Orders than otherwise would have occurred.” Amended Complaint, ¶ 408. But the alleged injury L3 claims it suffered itself is different, as the conduct “resulted in Jaxon obtaining business opportunities, including but not limited to these Task Orders instead of L-3.” Id., ¶ 407. In short, L3 alleges that its own injury was an injury to it as a competitor (it did not receive orders that it was entitled to), but that injury is different from the alleged injury to consumers (that they paid higher prices for services). Because L3’s own claimed injury is not the same as the alleged antitrust injury, this too requires dismissal of the Sherman Act claim.
15. Unfair competition claim
Finally, the Defendants challenge several aspects of L3’s common-law unfair competition claim. They begin by noting that the statutory citation accompanying this claim (allowing civil suit by owner to recover stolen property) is apparently unconnected with the allegations in the body of the claim and in L3’s defense of the claim in its response, and thus, the Court disregards that statutory citation.
The Defendants contend that this claim is preempted by the Colorado Uniform Trade Secrets Act, and L3 responds by arguing that the claim seeks relief for those instances in which the Defendants profited from misappropriating L3’s non-trade secret, but still proprietary, business forms and information. Although Colorado appears to contemplate the tort of unfair competition applying in such circumstances, see Powell,
16. Request for a more definite statement
The Court summarily rejects the Defendants’ request that L3 be required to provide a more definite statement of its claims. Without necessarily endorsing the quality of the pleading in the Amended Complaint, the Court finds that there are sufficient allegations contained therein to permit the Defendants to frame a meaningful response. Moreover, it is fully evident to the Court that the Defendants will avail themselves (and indeed, have already) of the full range of discovery available to them to assess and delimit the scope of L3’s claims.
B. Objections
Finally, the Court turns to the Defendants’ Objections to the Magistrate Judge’s ruling that L3 may designate Mr. Crain as its Technical Advisor, and that Mr. Crain can be given access to “attorneys’ eyes only” material.
Rulings on non-dispositive issues by a Magistrate Judge are reviewed by this Court pursuant to Fed.R.Civ.P. 72(a), and will be reversed only if they are “clearly erroneous or contrary to law.” 28 U.S.C. § 636(b)(1)(A); Hutchinson v. Pfeil,
The Court begins by observing that the question of who L3 may designate as a Technical Advisor and what materials that person should be given access to are matters that are not governed by any strict rule or controlling precedent, but rather fall within the general requirement that the Court exercise its sound discretion in deciding what safeguards should apply to discovery concerning a party’s trade secret information. Centurion Indust., Inc. v. Warren Steurer and Assocs.,
The Court has reviewed the parties written submissions with regard to the Motion for Protective Order, the materials that they have submitted in conjunction with the Objections herein, and the transcript of the July 18, 2011 hearing (# 75-1) and the Magistrate Judge’s oral ruling. On that record, the Court cannot say that the Magistrate Judge abused her discretion in permitting L3 to designate Mr. Crain as Technical Advisor, nor in permitting Mr. Crain to have access to a portion of Jaxon’s pricing information.
The Defendants argue that L3 did not carry its burden of showing that it was necessary to identify Mr. Crain, as opposed to a disinterested outsider, as its Technical Advisor. Assuming, without necessarily finding, that this is a correct statement of the relevant standard, the Court observes that the record before the Magistrate Judge on this question was contested. The Defendants proffered the affidavit of Randall White, who stated that
The Magistrate Judge elected to resolve this dispute by generally siding with Mr. Crain. Among other things, she observed that he “is probably preeminent in this field, ... and in fact is the co-inventor on the patents in suit, so obviously knows a lot about it ... He knows things about what was going on [at L3 when the Defendants left] that no one else has, and he’s a fact witness with a lot of expertise woven in.” As a result, she concluded that “he is essential to the ability of the plaintiff to prove their case.” Having reviewed the Defendants’ Objections, the Court does not understand the Defendant to dispute any of these factual findings — that Mr. Cain is preeminent in the field and a co-inventor of the technology, nor that he was present at L3 with knowledge of its operations as of the time the Defendants left. Thus, the Court cannot say that the Magistrate Judge’s factual findings were clearly erroneous. Nor can the Court say that the decision that Mr. Crain, given his unique possession of both expertise and factual knowledge, is “necessary” is contrary to law. The Magistrate Judge expressly noted her concern that “there is a high risk of harm” to Jaxon from allowing Mr. Crain to serve in this capacity, but she acknowledged that various restrictions would bus sufficient to ameliorate those risks. The Defendants have pointed the Court to no law that would suggest that Mr. Crain would not be considered necessary under such circumstances.
The Court then turns to the question of whether the Magistrate Judge abused her discretion in granting Mr. Crain access to Jaxon’s pre-suit (but not post-suit) pricing information. The Magistrate Judge heard extensive argument from both sides on this issue and concluded that pricing information “is so intertwined with what they’re looking at that I think they need Mr. Crain to be able to see all of that, because in order to evaluate a proposal, at least in their minds, to see if there is something the believe is stolen, they have to see the whole package.” This is consistent with L3’s argument, which the Magistrate Judge apparently credited, such that the Court cannot say that her finding that technical and pricing data were “intertwined” is clearly erroneous. Nor have the Defendants pointed the Court to any law that would direct that, based on the Magistrate Judge’s findings, Mr. Crain should be prohibited from having access to the pricing information. The Magistrate Judge clearly took into consideration the risk of harm to Jaxon that could result from Mr. Crain having unrestricted access, and crafted a ruling that gave Mr. Crain access to only that information that was necessary to his function, exposing no more of Jaxon’s pricing and financial information than was necessary. Under these circumstances, the Court cannot say that this ruling was contrary to law.
For the foregoing reasons, the Defendants’ Motion to Dismiss (# 47) is GRANTED IN PART, insofar as the Court dismisses the RICO/COCCA claims in their entirety; the Lanham Act claim as against Defendants Charles Rettig, Scott White, James Youngman, Jerry Lubell, Kelly Rice, and John McClure; the tortious interference with prospective economic advantage claim against all Defendants except Jaxon, Randall White, and Susan Rettig; and the Sherman Act claim in its entirety, each pursuant to Fed. R.Civ.P. 12(b)(6); and the common-law unfair competition claim as redundant; and DENIED IN PART in all other respects. The Defendants’ Objections (# 83) are OVERRULED and the Court AFFIRMS the Magistrate Judge’s July 18, 2011 Minute Order (# 70) granting the Plaintiffs Motion for Protective Order.
Notes
. L3's response generically asserts an intention to “amend the Amended Complaint to cure any deficiencies.” Given the contentiousness of this matter to date, and the fact that L3 has already amended its complaint, both formally (# 33) and informally by stipulation (# 61), the Court is not inclined to grant blanket leave to L3 to further amend its pleadings. If L3 believes that it can cure the defects in its pleadings, it may seek leave to amend according to Fed.R.Civ.P. 15, accompanying such a request with a proposed amended pleading within 7 days of the date of this Order.
. 13 contends that its claim is one for "breach of loyalty” as recognized in Jet Courier Sev., Inc. v. Mulei,