United States District Court, D. Colorado
OPINION AND ORDER RE: MOTIONS FOR SUMMARY
S. KRIEGER SENIOR UNITED STATES DISTRICT JUDGE.
MATTER comes before the Court pursuant to Cypress
Advisor's (“Cypress”) Motion for Summary
Judgment (# 141, 142, 144, 145) on the
counterclaims asserted against it by Mr. Davis, Mr.
Davis' response (# 152, 153), and
Cypress' reply (# 158, 159); and Mr.
Davis' Motion for Summary Judgment (#
143) on certain claims against him by Cypress,
Cypress' response (# 150, 151), and Mr.
Davis' reply (# 155, 156). Also pending
are several motions to restrict public access (#148,
#149, #154, #157, #160, #161) to the parties'
various summary judgment filings.
Court exercises diversity jurisdiction in this matter
pursuant to 28 U.S.C. § 1332.
Relevant Factual Background
Court summarizes the pertinent facts herein, and elaborates
as necessary in its analysis.
Zuccarello owns Cypress, a business that provides financial
advisory services to clients involved in purchasing and
operating restaurant franchises. In 2000, Mr. Zuaccarello
invited Mr. Davis to join the business, although there is
some dispute between the parties as to precisely what form
that joinder took. There is also some dispute between the
parties about their precise agreement regarding Mr.
Davis' compensation, but it is sufficient to observe at
this point that, for most years until 2010, the general
practice appears to be that each individual earned at least
25% of the revenues associated with any deal, regardless of
how the work was initiated or performed, with the remaining
amount allocated based on various factors.
early 2011, Mr. Zuccarello notified Mr. Davis that he
perceived “a significant disparity in the income
generation on the deals we worked on independently” -
that is, that Mr. Zuccarello believed he was generating
substantially more revenue for Cypress than Mr. Davis was. At
that same time, Cypress was allocating less than a 25% share
of revenues from Mr. Zuccarello's deals to Mr. Davis. Mr.
Zuccarello suggested that they “find an equitable
solution to the imbalance in revenue sharing”. Over
several years, the parties engaged in periodic discussions
about future revenue splits, but failed to reach a firm
2016, Mr. Davis left Cypress, formed his own competing
business, and began soliciting and performing some services
for clients that Mr. Davis knew had contractual agreements to
deal exclusively with Cypress. Cypress alleges that such
solicitations are improper in various respects as discussed
herein. Several lawsuits, including the instant one, ensued.
Amended Complaint (# 28), Cypress asserts
the following claims against Mr. Davis: (i) a request for a
declaratory judgment addressing several topics, including the
nature of Mr. Davis' involvement with Cypress, whether
Mr. Davis is a party to certain agreements that Cypress has
with certain clients, and whether Mr. Davis is entitled to
fees earned by Cypress after his departure; (ii)
misappropriation of trade secrets in violation of
Colorado's Uniform Trade Secrets Act
(“CUTSA”), C.R.S. § 7-74-101 et
seq., in that since Mr. Davis' departure from
Cypress, Mr. Davis has improperly used Cypress' trade
secret information to solicit and perform services for
Cypress' clients; (iii) a claim of unspecified
provenance, captioned as “Civil Theft of Trade Secrets,
” that appears to be duplicative of Cypress' CUTSA
claim; (iv) a claim for civil theft under C.R.S. §
18-4-401 et seq., in that Mr. Davis intercepted and
cashed a check from a client, payable to Cypress, in the
amount of approximately $1, 000; (v) a claim of common-law
conversion, presumably under Colorado law, relating to the
same events as the civil theft claim; (vi) tortious
interference with contractual relations, in that Cypress had
contracts with various clients and that Mr. Davis induced
those clients not to perform those contracts by engaging in
consulting services with the clients despite Cypress'
exclusivity agreements and by directing the clients to make
payments to him, knowing that the payments should have been
directed to Cypress; (vii) breach of contract, apparently
under Colorado law, relating to Mr. Davis' breach of a
Solicitation and Engagement Agreement he had with Cypress
that allegedly limited his ability, post-separation, to
provide consulting services to Cypress' clients; and
(viii) a claim for unjust enrichment, presumably under
Colorado law, that Mr. Davis “receiv[ed] excessive
compensation for work in the franchise restaurant industry
without paying the associated expenses.”
Davis filed counterclaims/third-party claims (#
60) against both Cypress and Mr. Zuccarello,
alleging: (i) breach of contract against both defendants, in
that the two men had a partnership agreement addressing Mr.
Davis' promised compensation and that the defendants
breached that agreement by failing to pay Mr. Davis properly;
(ii) wrongful disassociation of a partnership against Mr.
Zuccarello, in violation of C.R.S. § 7-64-602; (iii) as
an alternative to Claim 2 (which is premised upon an alleged
partnership agreement), breach of contract against both
defendants, in that Mr. Davis and Mr. Zuccarello conducted
their mutual business under “a series of oral joint
venture[ ]” agreements, particularly relating to
compensation, and that the defendants breached those
agreements by not paying Mr. Davis properly; (iv) breach of
fiduciary duty, presumably under Colorado law, against both
defendants arising from their failure to properly compensate
Mr. Davis in various respects; (v) as an alternative to
Claims 2 and 3, a claim sounding in breach of contract
against both defendants, relating to an otherwise unspecified
agreement the parties had regarding Mr. Davis'
entitlement to various items of compensation; (vi) promissory
estoppel, presumably under Colorado law, in that the
defendants made promises to Mr. Davis about his compensation
with Cypress, then repudiated those promises after Mr. Davis
performed work for Cypress in reliance upon them; (vii) a
claim for a declaratory judgment on various subjects,
including that the parties had a partnership agreement that
was improperly terminated and that Mr. Davis is entitled to
continue business operations under the “Cypress”
name; (viii) “constructive fraud” under both
North Carolina and Colorado law, essentially deriving from
the same facts underlying the previous claims; (ix) - (xi)
various equitable claims, asserted under both Colorado and
North Carolina law, seeking dissolution of the parties'
partnership, an accounting, and receivership if Cypress'
assets; (xii) a claim under both North Carolina and Colorado
statutes and regulations requiring the prompt payment of
wages; (xiii) and (xiv) claims sounding in unjust enrichment
and quantum meruit, under an unspecified jurisdiction's
common law, relating to Mr. Davis' compensation; and (xv)
tortious interference with prospective economic advantage, in
that Mr. Zuccarello and Cypress usurped business
opportunities when prospective clients contacted the
defendants in search of Mr. Davis'
sides move for summary judgment on the other side's
claims. Cypress' motion (#141, 142)
argues that: (i) Mr. Davis lacks standing to pursue any of
his claims against Cypress because Mr. Davis'
interactions with Cypress were performed though an entity Mr.
Davis owned (Cypress International, Inc., which, for purposes
of clarity, the Court will refer to as “CI”), and
that entity, rather than Mr. Davis, suffered the alleged
injuries; (ii) as to Mr. Davis' claims for breach of
partnership agreement (Claim 1), breach of joint venture
agreement (Claim 3), breach of contract (Claim 5), and
promissory estoppel (Claim 6), that Mr. Davis cannot show
that after 2010, he and Mr. Zuccarello and Cypress ever
reached a clear and definite agreement as to Mr. Davis'
compensation; (iii) as to those same claims, Cypress is
entitled to judgment on its affirmative defense that in 2012,
Mr. Davis' waived any claim for a share of revenues from
business originated by Mr. Zuccarello; (iv) as to those same
claims, Cypress is entitled to judgment on its affirmative
defense of statute of limitations because Mr. Davis'
claims to unpaid compensation involve agreements on
case-by-case basis (subject to a three-year limitations
period under C.R.S. § 13-80-101(1)), rather than
liquidated amount (subject to a six-year limitations period
under C.R.S. § 13-80-103.5(1)); and (v) as to the joint
venture claim (Claim 3), Mr. Davis cannot show that the
parties entered into separate joint venture agreements with
Davis' summary judgment motion (# 143)
argues that Mr. Davis is entitled to summary judgment: (i) on
Cypress' claim for misappropriation of trade secrets
because Cypress cannot identify any particular trade secret
that was misappropriated and cannot establish that it
suffered any loss as a result of any misappropriation; (ii)
on Cypress' civil theft claim relating to trade secrets,
for essentially the same reasons; (iii) on Cypress' claim
for tortious interference with contract because Cypress
cannot show that any of the clients whom Mr. Davis'
allegedly interfered actually breached their contract with
Cypress; (iv) on Cypress' breach of contract claim
because Cypress cannot show that it suffered any loss because
of Mr. Davis' alleged breach of contract and solicitation
of Cypress' clients; and (v) on Cypress' unjust
enrichment claim because Cypress cannot establish the value
of the benefit that Mr. Davis' allegedly received.
Standard of Review
of the Federal Rules of Civil Procedure facilitates the entry
of a judgment only if no trial is necessary. See White v.
York Int'l Corp., 45 F.3d 357, 360 (10th Cir. 1995).
Thus, the primary question presented to the Court in
considering a Motion for Summary Judgment or a Motion for
Partial Summary Judgment is: is a trial required?
is required if there are material factual disputes to
resolve. As a result, entry of summary judgment is authorized
only “when 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); Savant Homes,
Inc. v. Collins, 809 F.3d 1133, 1137 (10th Cir. 2016). A
fact is material if, under the substantive law, it is an
essential element of the claim. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is
genuine if the conflicting evidence would enable a rational
trier of fact to resolve the dispute for either party.
Becker v. Bateman, 709 F.3d 1019, 1022 (10th Cir.
consideration of a summary judgment motion requires the Court
to focus on the asserted claims and defenses, their legal
elements, and which party has the burden of proof.
Substantive law specifies the elements that must be proven
for a given claim or defense, sets the standard of proof, and
identifies the party with the burden of proof. See
Anderson, 477 U.S. at 248; Kaiser-Francis Oil Co. v.
Producer's Gas Co., 870 F.2d 563, 565 (10th Cir.
1989). As to the evidence offered during summary judgment,
the Court views it the light most favorable to the non-moving
party, thereby favoring the right to trial. See Tabor v.
Hilti, Inc., 703 F.3d 1206, 1215 (10th Cir. 2013).
for summary judgment generally arise in one of two contexts -
when the movant has the burden of proof and when the
non-movant has the burden of proof. Each context is handled
differently. When the movant has the burden of proof, the
movant must come forward with sufficient, competent evidence
to establish each element of its claim or defense.
See Fed. R. Civ. P. 56(c)(1)(A). Presumably, in the
absence of contrary evidence, this showing would entitle the
movant to judgment as a matter of law. However, if the
responding party presents contrary evidence to establish a
genuine dispute as to any material fact, a trial is required
and the motion must be denied. See Leone v. Owsley,
810 F.3d 1149, 1153 (10th Cir. 2015); Schneider v. City
of Grand Junction Police Dep't, 717 F.3d 760, 767
(10th Cir. 2013).
different circumstance arises when the movant does not have
the burden of proof. In this circumstance, the movant
contends that the non-movant lacks sufficient evidence to
establish a prima facie case. Celotex Corp. v.
Catrett, 477 U.S. 317, 325 (1986). The moving party must
identify why the respondent cannot make a prima
facie showing; that is, why the evidence in the record
shows that the respondent cannot establish a particular
element. See Collins, 809 F.3d at 1137. If the
respondent comes forward with sufficient competent evidence
to establish a prima facie claim or defense, then a
trial is required. Conversely, if the respondent's
evidence is inadequate to establish a prima facie
claim or defense, then no factual determination of that claim
or defense is required and summary judgment may enter.
See Shero v. City of Grove, Okla., 510 F.3d 1196,
1200 (10th Cir. 2007).
Misappropriation of Trade Secret (Claim 2)
prove a claim of misappropriation of trade secrets under the
Colorado Uniform Trade Secrets Act (C.R.S. § 7-74-101
et seq.), a plaintiff must establish the following
elements: 1) that it possessed a valid trade secret, 2) that
the trade secret was disclosed or used by the defendant
without consent, and 3) that the defendant knew, or should
have known, that the trade secret was acquired by improper
means. See Gates Rubber Co. v. Bando Chem. Indus.,
Ltd., 9 F.3d 823, 847 (10th Cir. 1993). Colorado statute
defines a trade secret to be “the whole or any portion
or phase of any scientific or technical information, design,
process, procedure, formula, improvement, confidential
business or financial information, listing of names,
addresses, or telephone numbers, or other information
relating to any business or profession which is secret and of
value.” C.R.S. § 7-74-102(4). Moreover, the holder
of an alleged trade secret must have acted reasonably to
prevent its disclosure. See Saturn Sys. Inc. v.
Militare, 252 P.3d 516, 522 (Colo.App. 2011).
Davis alleges that Cypress cannot come forward with evidence
sufficient to establish the existence of any trade secret
that he misappropriated, and separately that Cypress cannot
show that it suffered a loss as a result of any such
has adduced the affidavit of Mr. Zuccarello, which explains
that Cypress maintains a “clients and contacts
database” that includes numerous industry contacts
(both prospective buyers and sellers of franchises);
information about the contacts' size, profits, and
territory; competitor information; lender and banking
information, and various other details. Mr. Zuccarello states
that he complied the database himself over two decades of
work, that the database would be of significant value to
competitors who would otherwise be hard-pressed to replicate
its contents using publicly-available information. Mr.
Zuccarello states that access to the database is controlled
by a password that he issues to Cypress personnel whose work
requires such access. Cypress has also come forward with
evidence that Mr. Davis made use of documents contained in
the Cypress database when he was soliciting Cypress clients
after leaving Cypress' employ and forming his own
business. Thus, the Court finds that Mr. Zuccarello's
affidavit suffices to establish at least a triable issue as
to whether the Cypress database constitutes a trade secret
under Colorado law and whether Mr. Davis misappropriated some
or all of it.
Mr. Davis' argument that Cypress cannot show that it
suffered a loss due to his alleged misappropriation of trade
secrets, Colorado law provides that a party whose trade
secret is misappropriated may recover compensatory damages
that reflect, among other things, research and development
costs that the defendant would have incurred in attempting to
replicate the stolen trade secret through the defendant's
own efforts. Sonoco Products Co. v. Johnson, 23 P.3d
1287, 1289 (Colo.App. 2001). Cypress cites to the report of
its expert, Shawn Fox, who has opined that, among other things,
Mr. Davis' misappropriation of Cypress' database
saved him approximately $1.41 million compared to the cost of
accumulating that database on his own. Thus, the Court is
satisfied that Cypress has come forward with sufficient
evidence of recoverable loss to support its trade secret
misappropriation claim. Accordingly, Mr. Davis' motion is
denied with regard to that claim.
Civil Theft of Trade Secret (Claim 3)
Davis also moves for summary judgment on Cypress
Advisors' claim for civil theft of trade secrets. This
claim derives from C.R.S. § 18-4-405, sometimes referred
to the “civil theft statute, ” which provides
that, where a defendant has obtained the plaintiff's
property by theft, the plaintiff may “maintain an
action against. . . the taker” and recover statutory
damages of $200 or trebled actual damages, plus attorney
Davis' motion challenges the sufficiency of this claim
based largely upon the same arguments addressed above - that
the material he allegedly took does not rise to the level of
“trade secrets.” Giving due regard to the
parties' right to be heard, the Court nevertheless finds
it appropriate to resolve this claim on a ground not raised
by Mr. Davis nor briefed by Cypress. (The Court is satisfied
that the issue presented is one of law and that the outcome
is clear, such that giving the parties an opportunity to
brief the issue would not be likely to change the outcome.)
CUTSA broadly preempts other laws providing civil remedies
for misappropriation of a trade secret. C.R.S. §
7-74-108(1). Because Cypress unambiguously alleges that the
materials taken by Mr. Davis constitute trade secrets, CUTSA
preempts such a civil theft claim.
the exceptions to that preemption is for statutes that
provide for “criminal remedies” for the theft of
trade secrets. C.R.S. § 7-74-108(2)(c)(3). Although the
civil theft statute is codified within Colorado laws relating
to criminal offenses, the remedy it provides is
civil in nature, not criminal (i.e. imprisonment or
fines). Indeed, Colorado criminal law contains an entirely
separate provision that specifically criminalizes the theft
of trade secrets, further suggesting that the civil theft
statute does not create criminal penalties. C.R.S. §
18-4-408. Moreover, by authorizing treble damages, C.R.S.
§ 18-4-405 creates remedies that are inconsistent with
CUTSA's remedial scheme. Under such circumstances, this
Court, like others that have considered the issue, finds that
a claim under Colorado's civil theft statute that is
premised upon the theft of a trade secret is preempted by
CUTSA. See e.g. Powell Products, Inc. v. Marks, 948
F.Supp. 1469, 1474-75 (D.Colo. 1996); Hawg Tools, LLC v.
Newso International Energy Servs., Inc., 2015 WL 1064519
(D.Colo. Feb. 23, 2015) (unpublished).
in Colorado have found that CUTSA did not preempt a
civil theft claim where the civil theft claim was premised
upon the theft of items that were not trade secrets.
See SBM Site Services, LLC v. Garret, 2012 WL 628619
(D.Colo. Deb. 27, 2012) (“[b]ecause Plaintiff's
Amended Complaint alleges that, in addition to trade secrets,
Able and Garrett stole actual physical items, the Court finds
that its [civil theft] claim is not preempted.”);
see also Powell, 948 F.Supp.2d at 1475
(“because plaintiff's claim also seeks recovery of
the physical items stolen, including blueprints and drawings,
which would not be the subject of a misappropriation claim
under the UTSA, plaintiff's conversion claim is not
entirely preempted”). But, as mentioned above,
Cypress' claim is unambiguous that Mr. Davis stole only
information,  and only information that could be
characterized as a trade secret. Accordingly, the Court,
sua sponte, dismisses Cypress' claim for civil
theft as preempted.
Intentional Interference with Contractual ...