Court Opinion

ID: 7801272
Source: CourtListenerOpinion
Date Created: 2022-08-17 15:00:45.42122+00
Date Added: 2024-06-11T16:29:15.391133
License: Public Domain

Appellate Case: 21-1385     Document: 010110725724    Date Filed: 08/17/2022   Page: 1
                                                                               FILED
                                                                   United States Court of Appeals
                       UNITED STATES COURT OF APPEALS                      Tenth Circuit

                              FOR THE TENTH CIRCUIT                      August 17, 2022
                          _________________________________
                                                                      Christopher M. Wolpert
                                                                          Clerk of Court
  LS3 INC., a Maryland corporation,

        Plaintiff - Appellant,

  v.                                                        No. 21-1385
                                               (D.C. No. 1:20-CV-03555-PAB-NYW)
  CHEROKEE NATION STRATEGIC                                  (D. Colo.)
  PROGRAMS, L.L.C., an Oklahoma
  limited liability company; CHEROKEE
  FEDERAL SOLUTIONS, L.L.C., an
  Oklahoma limited liability company;
  CHEROKEE SERVICES GROUP, LLC, a
  Cherokee Nation limited liability company;
  KELLY CARPER; DONALD LOPEZ;
  GWYNETH ROBE; DANIEL CERMAN;
  STEVE CLARK; DEBRA DIX; LEVI
  FLINT; GREGORY FRISINA; SIRISHA
  GANTI; WAYNE HOPKINS; ERICA
  HOPPE; ALAN HUGGENBERGER;
  JAKEB HUGGENBERGER; RONALD
  JACOBSON; KARL LONG; WILLIAM
  MCKINNEY; ISAAC MIRELES; KEVIN
  MUIR; FREDERICK PETERS; CAROL
  SCHREINER; REX STEFFEN;
  NICHOLAS STEVENS,

        Defendants - Appellees.
                       _________________________________

                              ORDER AND JUDGMENT*
                          _________________________________

       *
         After examining the briefs and appellate record, this panel has determined
 unanimously to honor the parties’ request for a decision on the briefs without oral
 argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
 submitted without oral argument. This order and judgment is not binding precedent,
Appellate Case: 21-1385    Document: 010110725724        Date Filed: 08/17/2022      Page: 2

 Before MATHESON, BACHARACH, and MORITZ, Circuit Judges.
                   _________________________________

       LS3, Inc. sued Cherokee Nation Strategic Programs, L.L.C.; Cherokee Federal

 Solutions, L.L.C.; and Cherokee Services Group, LLC (collectively the “Cherokee

 Defendants”); and 22 former LS3 employees (the “Individual Defendants”) for

 breach of contract, intentional interference with contract, civil conspiracy, and

 misappropriation of trade secrets. The district court dismissed these claims under

 Federal Rule of Civil Procedure 12(b)(6). Exercising jurisdiction under 28 U.S.C.

 § 1291, we reverse in part, affirm in part, and remand for further proceedings.

                                  I. BACKGROUND1

                                      Factual History

       LS3 provided services to the U.S. government, primarily through a contract

 with the United States Department of Agriculture (“USDA”).2 The Cherokee

 Defendants are competitors of LS3. The Individual Defendants are former LS3

 employees who now work for the Cherokee Defendants.

 except under the doctrines of law of the case, res judicata, and collateral estoppel. It
 may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1
 and 10th Cir. R. 32.1.
       1
         Except where otherwise noted, these facts come from LS3’s Amended
 Complaint. We take as true the well-pleaded allegations when considering a motion
 to dismiss. See Waller v. City & Cnty. of Denver, 932 F.3d 1277, 1282 (10th Cir.
 2019).
       2
         The services related to a “cybersecurity domain that allows agencies to
 securely access resources across existing systems and emerging platforms.” Identity,
 Credential, and Access Management (ICAM), Cybersecurity & Infrastructure
 Security Agency, https://perma.cc/V8P9-69W6.
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       LS3 lost its bid for a USDA contract to Easy Dynamics. One of LS3’s

 business partners protested the award. As the protest proceeded, the government

 eventually awarded a “bridge contract” to the Cherokee Defendants, a short-term

 contract to ensure continuity of services while the government resolved the dispute

 over who would secure the longer-term contract.

       The Individual Defendants had each signed with LS3 either an “Intellectual

 Property, Non-Interference/Non-Solicitation and Non-Disclosure Agreement” (“IP-

 NDA”) or an “Employment Agreement” (“EA”). Both included “duty of loyalty”

 provisions, which prohibited the Individual Defendants from interfering with LS3’s

 existing or prospective business relationships. Under the IP-NDAs, Individual

 Defendants agreed not to “participate or otherwise be involved in competition with

 LS3 for the award of any contract . . . that Employee knows or should have known

 LS3 was competing or preparing to compete for.” Aplt. App. vol. 2 at 134.

 Individual Defendants who signed EAs agreed not to “directly or indirectly induce or

 attempt to induce any customer . . . of the Company to cease doing business with the

 Company.” Id. at 142. The IP-NDAs and EAs also both contained nondisclosure

 provisions to protect confidential information. Aplt. App. at 135–36 (nondisclosure

 provisions of IP-NDA); id. at 141–42 (nondisclosure provisions of EA).

       In August 2020, Linda Evans, a manager for the Cherokee Defendants, sent an

 email to LS3’s employees who had been working in support of a previous USDA

 contract, including the Individual Defendants (the “Evans email”). It read:

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       Dear ICAM Team Member,

              You are undoubtedly aware of the protests resulting in a
       delay in award of the new contract replacing LS3 Technologies as
       the prime contractor on the ICAM support contract. As a result,
       Cherokee Nation Strategic Programs (CNSP) has been notified
       we are being awarded a bridge (interim) contract for four to
       nine months while the long‐term contract award is completed.
       CNSP is teamed with two other strategic partners to deliver this
       work during the bridge period. CNSP and its partners will give
       employment preference to current team members who apply
       for employment on the bridge contract.

              We understand how difficult this uncertainty is for
       incumbent personnel on a contract, and our desire is to make this
       a simple and uneventful transition, both transitioning into the
       CNSP contract, and transitioning out to the eventual winner of
       the long‐term contract.

             It is our practice, whenever possible, to keep team
       members’ salaries intact – we want to ensure this is as painless
       as possible! To that end, please help us help you by doing the
       following:

          1) Please complete the attached information form. . . .

          2) Please obtain your most current pay stub digitally, or scan it,
             or take a photo of it. This should show your rate of pay,
             hours worked, and the date.

          3) Please “reply all” to this email with both the information form
             and pay stub attached by NOON LOCAL TIME FRIDAY,
             AUGUST 14. . . .

          4) Please tell your co‐workers who may not check their personal
             email often to check their email and respond as quickly as
             possible to this request. If they haven’t received this email,
             please give them my contact information, below, and ask
             them to reach out to us ASAP.
             We’re sorry to have to ask for such a rapid response, but
       we have been given an extremely short timeline by the

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       Government for this transition, to ensure all employees are ready
       to work on the new contract by September 1.

              ...

             One last thing: I understand some of you have expressed
       concerns about non‐compete agreements you have signed with
       your current employer. Please note that under Colorado law, it is
       unlawful to use force, threats, or other means of intimidation to
       prevent any person from engaging in any lawful occupation at
       any place he sees fit. . . .

             . . . Please know that CNSP and its partners will not ask
       you to provide, nor do we want you to provide, any
       proprietary information from your current employer.

             Please note that your salary is not proprietary
       information and you are free to disclose the compensation you
       receive as you wish.

              ...

              After you have reviewed this information, I hope you will
       feel comfortable discussing your future employment with Team
       Cherokee and providing the requested information.

 Id. at 105–07.

       Ms. Evans attached to the email a one-page questionnaire listing 10 questions

 regarding job title, ongoing training/certifications, length of employment, hours

 worked, work equipment, security clearance, salary, paid time off, and benefits

 information. The Individual Defendants responded to the Evans email and answered

 the questionnaire. They left LS3 to work for the Cherokee Defendants, either

 voluntarily or after LS3 fired them.

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                                    Procedural History

       LS3’s amended complaint included claims for (1) breach of contract against

 the Individual Defendants; (2) intentional interference with contract against the

 Cherokee Defendants; (3) civil conspiracy against all defendants; and

 (4) misappropriation of trade secrets against all defendants in violation of Colorado’s

 Uniform Trade Secrets Act, Colo. Rev. Stat. § 7-74-101–10, and the federal Defend

 Trade Secrets Act, 18 U.S.C. § 1836. The breach of contract claim was based on two

 theories—(1) breach of the duty of loyalty and (2) breach of confidentiality. The

 defendants filed motions to dismiss. They attached several EAs and IP-NDAs, the

 Evans email, and the questionnaire.

       The district court, exercising federal question and supplemental jurisdiction,

 see 28 U.S.C. §§ 1331, 1367,3 granted the motions. It dismissed

       (1) the breach of contract claim, finding the Individual Defendants did not breach
           either the IP-NDAs or the EAs because the Cherokee Defendants had already
           won the bridge contract and because none of the information they provided in
           responding to the Evans email and questionnaire was confidential.

       (2) the intentional interference with contract claim because breach of the IP-NDAs
           or the EAs was a necessary element;

       (3) the statutory trade secrets claims because the complaint did not allege
           misappropriation of any specific trade secrets and the information sought in the
           questionnaire was not a trade secret; and

       (4) the civil conspiracy claim because it was derivative of LS3’s other claims.

       3
          In its amended complaint, LS3 also asserted the existence of diversity
 jurisdiction. See 28 U.S.C. § 1332.
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                                    II. DISCUSSION

       “We review de novo a district court’s decision on a Rule 12(b)(6) motion for

 dismissal for failure to state a claim.” Waller v. City & Cnty. of Denver, 932 F.3d

 1277, 1282 (10th Cir. 2019) (italics, citation, and quotations omitted). We “apply[]

 the same standards as the district court” should have applied. Sutton v. Utah State

 Sch. for Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)

       “[W]e must accept all the well-pleaded allegations of the complaint as true and

 must construe them in the light most favorable to the plaintiff. Waller, 932 F.3d at

 1282. “Conclusory allegations are not entitled to the assumption of truth. In fact, we

 disregard conclusory statements and look to the remaining factual allegations to see

 whether Plaintiff[] ha[s] stated a plausible claim.” Brooks v. Mentor Worldwide LLC,

 985 F.3d 1272, 1281 (10th Cir.) (citation and quotations omitted), cert. denied,

 142 S. Ct. 477 (2021).

       “A claim has facial plausibility when the plaintiff pleads factual content that

 allows the court to draw the reasonable inference that the defendant is liable for the

 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Where a

 complaint pleads facts that are merely consistent with a defendant’s liability, it stops

 short of the line between possibility and plausibility of entitlement to relief.” Id.

 (quotations omitted).

                                 Breach of Duty of Loyalty

       LS3, challenging dismissal of its breach of loyalty claim, argues (1) the district

 court erred by considering the Evans email, (2) the email was hearsay, and (3) the

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 court’s determination that LS3 had already lost the bridge contract when Ms. Evans

 sent the email was contrary to the amended complaint. The Cherokee Defendants

 argue LS3 forfeited these arguments because LS3 did not raise them in its opposition

 to the motions to dismiss and waived them through its “failure to argue for plain error

 and its application on appeal . . . [which] surely marks the end of the road for an

 argument for reversal not first presented to the district court.” Richison v. Ernest

 Grp., Inc., 634 F.3d 1123, 1131 (10th Cir. 2011).

       We agree in part. LS3 did not preserve its argument that the district court’s

 considering the Evans email was improper, nor did it contend in district court that the

 email was hearsay. But LS3 argued in opposition to the motions to dismiss that,

 according to its amended complaint, the Evans email preceded the award of the

 bridge contract. See Aplt. App. vol. 2 at 182 (“As LS3 stated in the Amended

 Complaint, by communicating with and providing information to CNSP about not

 only LS3’s business but also about the Employees’ intentions to jump ship, the

 Employees enabled and motivated the government to make the switch from LS3 to

 [the] Cherokee Defendants.” (quotations omitted)).

       The district court, relying on the statement in the Evans email that the

 Cherokee Defendants “ha[d] been notified” that they “are being awarded” the bridge

 contract, id. at 105, found that the bridge contract had been awarded. Looking at the

 specific prohibitions in the IP-NDAs and EAs, the court further concluded that “the

 plain language of these duty of loyalty provisions only prevent a current employee

 from generally interfering with a current or active business opportunity. But because

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 [LS3] had already lost the contracts, [the] [I]ndividual [D]efendants could not have

 violated the duty of loyalty provisions.” Id. vol. 3 at 257.

       We agree that the duty of loyalty provisions prohibited only interference with

 a current or active business opportunity. So if LS3 had already lost the bridge

 contract by the time of the Evans email, its claim for breach of loyalty would fail.

       But under standards of review applicable to a motion to dismiss, the district

 court should not have inferred from the Evans email that LS3 “had already lost the

 contracts.” Aplt. App. vol. 3 at 257. When reviewing a document referenced in a

 complaint, although a court “may look to the contents of a referenced document itself

 rather than solely to what the complaint alleges the contents to be . . . such

 documents may properly be considered only for what they contain, not to prove the

 truth of their contents.” Emps.’ Ret. Sys. of R.I. v. Williams Cos., 889 F.3d 1153,

 1158 (10th Cir. 2018) (quotations omitted). Moreover, the email either did not say

 the bridge contract had been awarded or was ambiguous on that point. It said the

 contract was “being awarded.” Taking the allegations in the amended complaint as

 true and construing them in the light most favorable to LS3, see Waller, 932 F.3d at

 1282, we conclude the amended complaint plausibly alleged that LS3 was still

 competing for the bridge contract when Ms. Evans emailed the Individual

 Defendants.

       We therefore reverse the district court’s dismissal of the portion of the breach

 of contract claim alleging a breach of the duty of loyalty in the Individual

 Defendants’ IP-NDAs and EAs.

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                                  Breach of Confidentiality

         LS3’s remaining challenge to dismissal of the breach of contract claim fails.

  The district court concluded that none of the information that the Cherokee

  Defendants requested from the Individual Defendants in the Evans email or the

  questionnaire was confidential, so the court said there was no breach of the

  nondisclosure provisions. The email explicitly disclaimed any request for

  confidential information. And although LS3 asserts it “does not concede that the

  information requested by the questionnaire was not confidential and/or did not seek

  or sweep up confidential information,” Aplt. Opening Br. at 22, it has waived that

  argument because it has failed to explain why any of the ten questions on the

  questionnaire solicited protected information. See Bronson v. Swensen, 500 F.3d

  1099, 1104 (10th Cir. 2007) (“[W]e routinely have declined to consider arguments

  that are not raised, or are inadequately presented, in an appellant’s opening brief.”).

         LS3 argues the district court prematurely dismissed its breach of

  confidentiality claim before allowing discovery on what information the Individual

  Defendants shared and whether that information was confidential. LS3 points to its

  allegations that, “on information and belief,” the information the Individual

  Defendants shared “was not limited to” what the questionnaire solicited. Aplt. App.

  vol. 2 at 17. LS3’s argument and allegations fall short.

         First, LS3 did not advance this argument—that dismissal was premature

  without discovery—in its responses to the motions to dismiss in district court and

  therefore forfeited it.

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         Second, because the amended complaint failed to allege what information the

  Individual Employees shared, the conclusory factual allegations “are merely

  consistent with,” and not indicative of, the Cherokee and Individual Defendants’

  liability, and therefore “stop[] short of the line between possibility and plausibility of

  entitlement to relief.” Iqbal, 556 U.S. at 678 (quotations omitted).

         Third, LS3 cites no persuasive authority to support its contention that the court

  should have allowed discovery before deciding whether to dismiss its claim. And

  because LS3 did not adequately plead its breach of confidentiality claim, it was not

  entitled to proceed to discovery. See Ghailani v. Sessions, 859 F.3d 1295, 1304

  (10th Cir. 2017) (“[T]hreadbare recitals of the elements of a cause of action,

  supported by mere conclusory statements . . . no longer suffice to ‘unlock the doors

  of discovery’ . . . .” (quoting Iqbal, 556 U.S. at 678)).

                Intentional Interference with Contract and Civil Conspiracy

         Because the district court dismissed all aspects of LS3’s breach of contract

  claim, it also dismissed the intentional interference with contract and civil conspiracy

  claims. Both require LS3 to prove breach of the underlying employment contracts.

  See Mem’l Gardens, Inc. v. Olympian Sales & Mgmt. Consultants, Inc., 690 P.2d

  207, 210 (Colo. 1984) (recognizing liability for intentional interference requires

  “inducing or otherwise causing [a] third person not to perform [a] contract” (quoting

  Restatement (Second) of Torts § 766 (1977)); More v. Johnson, 568 P.2d 437, 440

  (Colo. 1977) (“In a civil conspiracy action, the conspiracy is not actionable per se.”).

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  We reverse the dismissal of those claims to the extent they are derivative of LS3’s

  claim for breach of the duty of loyalty provisions of the IP-NDAs and EAs.

                                      Misappropriation

        LS3’s challenge to the district court’s dismissal of its statutory claims for

  misappropriation of trade secrets fails because the amended complaint did not

  identify any trade secrets that may have been misappropriated. Under Colorado’s

  Uniform Trade Secrets Act, “[t]rade secret’ means the whole or any portion or phase

  of any . . . information relating to any business or profession which is secret and of

  value.” Colo. Rev. Stat. § 7-74-102. Similarly, under the federal Defend Trade

  Secrets Act, information is protectible as a trade secret only if it “derives independent

  economic value, actual or potential, from not being generally known to, and not

  being readily ascertainable through proper means by, another person who can obtain

  economic value from the disclosure or use of the information.” 18 U.S.C.

  § 1839(3)(B).

        The amended complaint lacked allegations identifying the information the

  Cherokee Defendants acquired from the Individual Defendants that may have been a

  protected trade secret. In fact, LS3 acknowledges that it “could not specifically say

  exactly what trade secrets were stolen,” but it argues that providing this information

  is “the function of the discovery process under a notice pleading standard.” Aplt.

  Opening Br. at 27, an argument it failed to make in district court. And LS3 again

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  fails to cite convincing authority for its discovery argument.4 Under Iqbal, because

  LS3 failed to allege what trade secrets the Cherokee Defendants misappropriated, its

  allegations “stop[] short of the line between possibility and plausibility of entitlement

  to relief.” Iqbal, 556 U.S. at 678 (quotations omitted). LS3’s failure to state a

  plausible claim precluded it from proceeding to discovery. See Ghailani, 859 F.3d at

  1304. We therefore affirm the district court’s dismissal of LS3’s claims for

  misappropriation of trade secrets.

                                   III. CONCLUSION

        We reverse the district court’s dismissal of the portion of LS3’s breach of

  contract claim alleging the Individual Defendants breached the duty of loyalty

  provisions of the IP-NDAs and EAs. We reverse the dismissal of LS3’s claims for

  intentional interference with contract and civil conspiracy to the extent those claims

  are derivative of LS3’s claims for breach of the duty of loyalty. In all other respects,

  we affirm the judgment of the district court. We remand for further proceedings

  consistent with this opinion.

                                              Entered for the Court

                                              Scott M. Matheson, Jr.
                                              Circuit Judge

        4
          In its reply brief, LS3 cites SGS Acquisition Co. Ltd. v. Linsley,
  352 F. Supp. 3d 1109, 1122 (D. Colo. 2018), but the district court’s summary
  judgment order in that case did not address pleading standards to survive a motion to
  dismiss.
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