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Johns Manville Corporation v. Knauf Insulation, LLC

United States District Court, D. Colorado

September 22, 2017

JOHNS MANVILLE CORPORATION, a Delaware corporation, and JOHNS MANVUXE, a Delaware corporation, Plaintiffs,
v.
KNAUF INSULATION, LLC, a Delaware corporation and KHAUF INSULATION GMBH, a German corporation, Defendants.

          ORDER

          R. BROOKE JACKSON, UNITED STATES DISTRICT JUDGE

         Judge R. Brooke Jackson This matter is before the Court on defendants Knauf Insulation, LLC's and Knauf Insulation GMBH's ("Knauf) four pending motions: (1) motion for summary judgment, ECF No. 161; (2) motion for partial summary judgment, ECF No. 163; (3) motion for partial summary judgment, ECF No. 164; and (4) motion for summary judgment, ECF No. 165. For the reasons below, the Court DENIES these motions.

         BACKGROUND

         Johns Manville Corporation and Johns Manville (collectively "JM") is an established manufacturer in the insulation and fiberglass industry. ECF No. 114 at 7. JM manufactures fiberglass insulation through a process called rotary fiberization, in which molten glass is propelled through tiny holes in the walls of metal discs spinning at high speeds. Id. at 7-8. These discs are known as "spinner discs." Id. at 8. JM is therefore "vigorously engaged" in research and development of fiberization and spinner disc technology. Id. This research includes the development and acquisition of longer-lasting and better-performing metal alloys with which to manufacture spinner discs. Id.

         Two such metal alloys are at issue in these motions. The first, RM-3, is a publicly-available alloy. The second is referred to internally at JM as GX-4. ECFNo. 114 at 8. JM developed and has been using GX-4 since the 1990s. Id. Knauf uses a materially identical alloy, which it refers to as RM-4. ECF No. 181-13 at 31:6-32:4. After research and development, JM has largely replaced GX-4 with a "unique, nonobvious" alloy it refers to as C05. Id. at 9; see also ECF No. 181-11 (noting that 90 percent of JM's spinners are made with C05 today, while the remainder are made with GX-4).

         JM employed metallurgist Walter Johnson from 1992 to 2007. ECF No. 114 at 10-12. From 1992 to 2004, Johnson "played a significant role" in JM's insulation business, including as "the named inventor of at least four JM patents related to insulation and spinner discs." Id. at 11. Johnson was aware of and involved in the development of confidential and proprietary information relating to insulation and spinner discs, including trade secrets related to manufacturing protocols, designs of spinner discs and testing data for alloys, and refining and casting specifications used with third-party vendors. Id. at 11. From 2004 to 2007, Johnson moved from JM's insulation business to its roofing department, which involved very little metallurgy. ECF No. 177-1 at 34:14-25; 36:22-37:4.

         Johnson voluntarily retired from JM in April 2007, informing JM that he was "going fishing." ECF No. 177-1 at 87:13-18. Upon retirement, he entered a contract to serve as a consultant to JM, but never did any consulting work for JM. Id. at 15:16-22. In May 2007, however, Johnson began working as the head of the spinner program at Knauf-one of JM's competitors in the fiberglass insulation market. ECF No. 165-1 at 1; see also ECF No. 114 at 12. Johnson worked as a Knauf employee until November 2015, when Knauf terminated him after allegedly discovering that he possessed confidential JM materials on Knauf servers and files. ECF No. 114 at 13.

         JM alleges that Knauf did not manufacture spinner discs before Johnson joined the company, choosing instead to purchase them from third parties, but that Knauf began manufacturing its own spinner discs after Johnson joined in 2007. Id. Knauf contracted with one particular spinner disc vendor, Owens-Corning, from at least 2005 to 2010. See ECF No. 181-9 at 10. Knauf decided to start moving away from Owens-Corning around 2006. ECF No. 181-14 at 47:12-21.

         JM learned that Johnson was working at Knauf at least by June 2007. ECF No. 161-12 at 3. Emails in June 2007 between JM's intellectual property-counsel and its Vice President of Research and Development and Chief Technology Officer reflect discussions about Johnson's working at Knauf. Id., see also ECF No. 161-14 at 74:13-74:20. JM alleges that it discovered that Knauf was using JM trade secrets in 2014, when its employees observed JM's "C05" designation on Knauf labels. ECF No. 114 at 13.

         JM filed suit against Knauf and Johnson in this Court on March 13, 2015. ECF No. 1. Subsequently, in its First Amended Complaint, filed on February 23, 2016, JM raised claims for (1) trade secret misappropriation in violation of the Colorado Uniform Trade Secrets Act, C.R.S. § 7-74-101-110 (CUTS A) against both Knauf and Johnson; (2) breach of contract against Johnson; and (3) breach of the implied covenant of good faith and fair dealing against Johnson. ECF No. 114 at 1-2. JM subsequently agreed to dismiss all claims against Johnson in this case without prejudice; these claims will be dismissed with prejudice either when Johnson testifies in this matter or if the remaining claims against Knauf are dismissed or otherwise resolved without potential for appeal. ECF No. 151-1 at 2. Knauf now moves for summary judgment and partial summary judgment on various grounds, as discussed herein.

         STANDARD OF REVIEW

         The Court may grant summary judgment if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must "designate specific facts showing that there is a genuine issue for trial." Id. at 324. A fact is material "if under the substantive law it is essential to the proper disposition of the claim." Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson v. Liberty Lobby, Inc., Ml U.S. 242, 248 (1986)). An issue of material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, Ml U.S. at 248. The Court will examine the factual record and make reasonable inferences therefrom in the light most favorable to the party opposing summary judgment. Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         ANALYSIS

         Knauff s motions for summary judgment and partial summary judgment raise four discrete issues: (1) whether JM's claim for trade secret misappropriation is barred by the statute of limitations; (2) whether Knauf is liable for trade secret misappropriation with respect to (a) testing data and specifications related to the RM-3 alloy and (b) the specific formula for the RM-4 alloy; (3) whether Knauf should be liable for certain money damages; and (4) whether Knauf should be released from its liability through the theory of respondeat superior. The Court will address each motion in turn.

         A. Statute of Limitations TECF No. 1611.

         First, Knauf moves for summary judgment on the grounds that JM filed its action for trade secret misappropriation after the three-year statute of limitations had run. ECF No. 161 at 1. According to Knauf, the CUTS A "expressly provides a three-year statute of limitations for an action of threatened trade secret misappropriation." Id. at 7 (citing CUTSA §§ 103, 107). Knauf argues that JM was aware of the threat of trade secret misappropriation in 2007, so its 2014 complaint was outside the three-year statute of limitations. Id. at 8.

         JM cites the CUTSA's statute of limitations, which makes no mention of threatened misappropriation: "an action for trade secret misappropriation must be brought within three years after the misappropriation 'is discovered or by exercise of reasonable diligence should have been discovered.'" ECF No. 177 at 1 (quoting C.R.S. § 7-74-107). Moreover, because the CUTSA's single reference to threatened misappropriation occurs in the context of injunctive relief, JM argues that this reference is irrelevant here. As a result, JM argues that Knauf s "threatened misappropriation" statute of limitations constitutes an improper legal standard, and thus that its motion for summary judgment should be denied as a matter of law. I agree.

         Contrary to Knauf s contentions, the only reference to threatened misappropriation in the CUTSA arises in the context of injunctive relief. See C.R.S. § 7-74-103 (providing that temporary and final injunctions may be granted "to prevent or restrain actual or threatened misappropriation of a trade secret."). There is no indication from the statute that threatened misappropriation is meant to be a trigger to start running the three-year time period. See C.R.S. § 7-74-107. Knauf argues that as a matter of statutory construction, "misappropriation" must refer to both "actual" and "threatened" in each instance, since the statute refers to both in the context of injunctive relief. ECF No. 187 at 1. However, the absence of such modifiers for the term outside the context of injunctive relief instead supports an inference that threatened misappropriation is relevant only for injunctive relief, and not otherwise. See Dole v. United Steelworkers of Am., 494 U.S. 26, 35 (1990) (quoting Massachusets v. Morash, 490 U.S. 107, 115 (1989) (In interpreting a statute, '"we are not guided by a single sentence or member of a sentence, but look to the provisions of the whole law.'").

         Additionally, Knauf s argument ignores the fact that injunctive relief is by its nature concerned with preventing prospective harms, but such concern does not extend to other facets of the statute, which addresses acts of misappropriation that have already occurred. Knauf s reliance on Xantrex Tech. Inc. v. Advanced Energy Indus., No. 07-cv-02324-WYD-MEH, 2008 WL 2185882 (D. Colo. May 23, 2008) to argue to the contrary is inapposite. In that case, the Court found only that "the Colorado legislature intended to recognize something less than actual misappropriation of a trade secret as appropriate for injunctive re/ze/-within the framework of the statute." Xantrex, 2008 WL 2185882 at *19 (emphasis added). Indeed, an inquiry into the existence of a threatened injury is essential to a court's decision to grant a preliminary injunction: such relief is deemed appropriate when, among other factors, "the threatened injury outweighs the harm that the preliminary injunction may cause the opposing party." Id. at *13 (emphasis added). A court considering whether to grant injunctive relief in a trade secret misappropriation case would thus naturally consider the existence of a threatened injury. But there is no reason to believe such an inquiry would occur in other contexts.

         In short, a cause of action for damages for trade secret misappropriation does not accrue until the plaintiff knows or should with reasonable diligence know that the defendant "used plaintiffs trade secrets, " even when the plaintiff previously knew that the defendant possessed and likely would use its trade secrets to develop a product. See Chasteen v. UNISIA JECS Corp., 216 F.3d 1212, 1219 (10th Cir. 2000) (citing Intermedics, Inc. v. Ventritex, Inc., 775 F.Supp. 1258, 1265-66 (N.D. Cal. 1991)). The Intermedics court emphasized that plaintiffs should not be pressured to file suits "based merely on suspicions and fears" but instead should be given time to confirm their suspicions of trade secret misappropriation before being required to file suit. Intermedics, 775 F.Supp. at 1266.

         Because JM is neither seeking injunctive relief for nor alleging a claim of threatened misappropriation in this case, and since the statute does not provide a cause of action for damages for threatened misappropriation in the first place, Knauf s reference to threatened misappropriation is inapplicable here.[1]Thus, as a matter of law, Knauf s first motion for summary judgment fails.

         B. Trade Secret Liability for RM3 and RM4 Alloys TECF No. 1631.

         Knauf next moves for partial summary judgment on the basis that it is not liable for misappropriation related to spinners made from the RM-3 and RM-4 alloys. ECF No. 163 at 1. Because the arguments for each alloy are distinct, I will address them separately below.

         RM-3 Alloy.

         Both parties concede that the RM-3 alloy is a '"decades'-old public-domain alloy." ECF No. 163 at 2; ECF No. 180 at 7. Thus, Knauf argues that JM cannot show that Knauf would have been unable to make RM-3 spinners "but for" the misappropriation of JM's trade secrets. Id. (citing Cartel Asset Mgmt. v. OcwenFin. Corp., 249 F.App'x 63, 74 (10th Cir. 2007) (unpublished). However, JM's claim for trade secret misappropriation with respect to the RM-3 alloy is not related to the alloy's formula, but is instead related to JM's confidential testing data and "refining and casting" specifications for the alloy. ECF No. 180 at 14. Moreover, JM argues that the correct standard for misappropriation is not whether Knauf could have manufactured its discs "but for" JM's trade secrets, but ...


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