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Great American Opportunities, Inc. v. Kent

United States District Court, D. Colorado

October 22, 2018

GREAT AMERICAN OPPORTUNITIES, INC, Plaintiff,
v.
JACOB KENT, Defendant.

          ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

          R. Brooke Jackson United States District Judge

         This matter is before the Court on plaintiff Great American Opportunities, Inc. and defendant Jacob Kent's cross-motions for partial summary judgment. ECF Nos. 37, 39. For the reasons stated herein, the plaintiff's motion is DENIED, and defendant's motion is GRANTED in part and DENIED in part.

         I. BACKGROUND

         Great American Opportunities (GAO) is a Tennessee company in the business of fundraising. ECF No. 1 (Complaint) at ¶2. It facilitates fundraising programing for schools, councils and civic organizations. Id. at ¶4. It does this by acting as a wholesaler of products - GAO's customers sell GAO products to fundraise for their organization. Id. at ¶4. GAO uses sales representatives who collaborate with fundraising program sponsors in each account. Id. at ¶4. Fundraising program sponsors are people like the school principal, administrators, secretaries, teachers and coaches that lead a fundraiser for their organization. Id. at ¶17. GAO runs as many as 25, 000 fundraising programs each year for about 16, 000 different accounts. Id. at ¶12.

         In running these programs, GAO develops customer account information such as a customer's fundraising history, what product lines the customer has used, the method of marketing and prize giving, the number of program participants, total sales, net profits, and the future goals of the participating schools and groups. Id. at ¶18. Sales representatives develop and document this information. Id. at ¶21. The information is stored on a computer server in Tennessee, and GAO maintains several layers of security to protect its data in compliance with the “Payment Card Industry” data security standards. Id. at ¶22. GAO states that it also develops strategic business plans, marketing plans, future product roll-outs, and information about the acquisitions of other sales forces and accounts of competitors in fundraising. Id. at ¶19. It considers all this information to be trade secrets and valuable confidential information. Id. at ¶27.

         Jacob Kent is a Colorado citizen and was a sales representative for GAO between October 1999 and December 31, 2015 or January 1, 2016, when he voluntarily resigned. Id. at ¶31; ECF No. 8 at ¶46. In 2002 Mr. Kent had entered into an employment agreement in which he acknowledged GAO's requirements that he not disclose trade secrets and other confidential information as a condition of employment. Id. at ¶28, 35; Employment Agreement § 5(a). Mr. Kent further agreed that for a period of two years following the date of his resignation, he would not solicit any account, customer, or sponsor of GAO within his assigned territory. Id. at ¶38; Employment Agreement § 5(b).

         However, GAO learned from other sales representatives that Mr. Kent, at least as of February 24, 2017, was soliciting business from Colorado accounts he formerly serviced as a GAO employee. Id. at ¶49-50. GAO sent two letters to Mr. Kent in March 2017 reminding him of his obligations under the Employment Agreement. However, he continued to solicit GAO customers for his new fundraising business. Id. at ¶53- 56.

         For his part Mr. Kent maintains that he was never provided any confidential or trade secret information after his first year with GAO. ECF No. 44 at 4. He further states that most of the information GAO argues is confidential is publicly accessible in the Colorado High School Activities Association directory, or by calling or visiting the school, or on GAO's website. Id. Mr. Kent describes the fundraising service provided by his new business as a platform for online donations that does not require student groups to sell products. Id. at 7. He argues that this is a service not offered by GAO, and that the customers he has contacted had already ceased doing business with GAO because they were looking to move from product sales to an online donation-only platform. Id.

         GAO filed its Complaint against Mr. Kent on July 17, 2017. ECF No. 1. It brought claims for misappropriation of trade secrets under federal and state law (Counts One and Two), breach of contract (Count Three), tortious interference with contracts (Count Four) and breach of the non-solicitation and non-interference clauses of the contract (Count Five).[1] On July 12, 2018, Mr. Kent moved for partial summary judgment asking for dismissal of all claims except claims contained in Count Three for breach of the confidentiality provisions of the Employment Agreement. ECF No. 37. Mr. Kent contends that the information identified by GAO does not constitute trade secrets or confidential business information, and that even if it did, Mr. Kent never misappropriated such information. He further claims that the provisions of the Employment Agreement relied upon by Plaintiff are unenforceable under Colo. Rev. Stat. §8-2- 113, and that counts one, two, and four are all barred by the economic loss rule. Id. GAO filed an opposition to this motion, ECF No. 42, and Mr. Kent filed a reply, ECF No. 45.

         On July 18, 2018, GAO moved for partial summary judgment asking for a determination of liability with the amount of damages to be determined separately. ECF No. 39. Mr. Kent filed an opposition to that motion, ECF No. 44, and GAO filed a reply, ECF No. 46. Mr. Kent then filed, with the Court's permission, a sur-reply. ECF No. 49. Both motions for summary judgment have been fully briefed and are ripe for review.

         II. 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 dispute about 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., 477 U.S. 242, 248 (1986)). A material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. The Court will examine the factual record and make reasonable inferences there 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).

         III. ANALYSIS

         Defendant claims that the noncompetition provision of the Employment Agreement between Mr. Kent and GAO are void and unenforceable under Colorado law; that he never misappropriated confidential or trade secret information; and that the tort and statutory claims are barred by the economic loss rule. Plaintiff claims that, beyond any genuine dispute as to any material fact, Mr. Kent misappropriated confidential and trade secret information in violation of his contractual, tort, and statutory obligations, and that he violated the non-solicitation agreement of his contract. After reviewing the briefings and applicable law I grant defendant's motion for summary judgment on Count Four, tortious interference with business relationships. Because genuine disputes of material fact remain, I deny defendant's and plaintiff's motions for summary judgment on all other counts.

         A. Enforceability of Employment Agreement ¶4 “Non-Competition and NonInterference.”

          The first issue in determining the enforceability of the noncompetition clause in the Employment Agreement is determining what law applies.

         1) Does Tennessee or Colorado Law Apply?

         Mr. Kent's Employment Agreement provides that it “will be interpreted and enforced in accordance with the laws of the State of Tennessee.” ECF No. 1-1 at ¶13. In his motion Mr. Kent does not address the choice of law issue and appears to assume that Colorado law applies. ECF No. 37 at 2, 6, 12. GAO responds that Mr. Kent overlooked the Tennessee choice of law provision but then argues that the agreement is enforceable under Colorado law anyway. ECF No. 42 at 2.

         In its motion GAO argues that Tennessee law applies. ECF No. 39 at 13. In response Mr. Kent argues that the Court should apply Colorado law notwithstanding the choice of law provision in the agreement. ECF No. 44 at 8. He adds that the noncompetition and non-solicitation clauses are unenforceable under Tennessee law in any event. Id. at 9.

         a) Did GAO Waive Its Right to Enforce the Choice of Law Clause?

         First, Mr. Kent argues that GAO has waived its right to enforce the choice of law provision in the Employment Agreement. In addition to providing that it will be interpreted and enforced in accordance with the laws of the State of Tennessee, the Employment Agreement also provides that the “[e]mployee hereby consents to the venue and jurisdiction of the courts of competent jurisdiction, state and federal, situated in Nashville, Davidson County, Tennessee in any action brought in connection with this Agreement.” ECF No. 1-1 at ¶13. Mr. Kent contends that this paragraph is meant to be construed as a whole so that Tennessee law will be applied when the case is tried in Tennessee. ECF No. 44 at 8. He argues that GAO, in filing suit in Colorado and waiving the right to sue in Tennessee, has also waived the choice of law provision. Id. Mr. Kent does not cite any law that suggests that a party waives choice of law when it waives choice of forum. I too have not found any law on this point.

         On the other hand, GAO cites a Colorado Court of Appeals case that held that a party waives choice of law where it fails to raise the issue before the trial court rules on dispositive issues relying on the disputed state law. Shoen v. Shoen, 2012 COA 207, ¶13, 292 P.3d 1224, 1227. GAO argues that because it has met this standard, it could not have waived choice of law. However, that case addresses when a party waives the right to appeal the issue of choice of law applied by a trial court. It does not address whether a party waives their right to enforce a choice of law provision in a contract by not seeking to enforce other rights in the contract.

         Interpreting the plain language of the contract, I conclude that the Employment Agreement does not indicate that both the choice of forum and the choice of law must be enforced for either to be enforced. The contract does not indicate that Tennessee is the only forum where an action may be brought to enforce the agreement. Instead, it states that Mr. Kent consents to the jurisdiction of courts in Tennessee. A reasonable reading of this sentence is that Tennessee is an appropriate forum, but not necessarily the only appropriate forum. Therefore, even reading the choice of law and choice of forum sentences together, it seems consistent with the plain language of paragraph 13 for GAO to sue in a forum other than Tennessee, as long as that forum has jurisdiction over Mr. Kent. And GAO can also enforce the choice of law provision stating that the Agreement will be governed by the laws of the State of Tennessee. I conclude that ...


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