Court Opinion

ID: 2998739
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:46:47.677888+00
Date Added: 2024-06-11T13:23:19.381026
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                       ____________

Nos. 05-2282 & 05-2302
HICKLIN ENGINEERING, L.C.,
                        Plaintiff-Appellant, Cross-Appellee,
                             v.

R.J. BARTELL AND R.J. BARTELL & ASSOCIATES, L.L.C.,
                   Defendants-Appellees, Cross-Appellants.
                       ____________
          Appeals from the United States District Court
               for the Eastern District of Wisconsin.
     No. 00-C-1516—Patricia J. Gorence, Magistrate Judge.
                       ____________
 ARGUED JANUARY 11, 2006—DECIDED FEBRUARY 22, 2006
                    ____________

 Before FLAUM, Chief Judge, and EASTERBROOK and
MANION, Circuit Judges.
  EASTERBROOK, Circuit Judge. Axi-Line Precision Prod-
ucts designs and makes testing equipment for auto and
truck transmissions. Since 1998 Axi-Line has been
a division of Hicklin Engineering. Between 1993 and 2000
R.J. Bartell, an engineer, worked part-time for Axi-Line. He
did not sign a restrictive covenant or confidentiality
agreement. After Bartell began a competing business (R.J.
Bartell & Associates) that sells transmission testing
equipment, Hicklin filed this suit under Wisconsin’s version
of the Uniform Trade Secrets Act. Wis. Stat. §134.90. The
2                                    Nos. 05-2282 & 05-2302

parties agreed to final decision by a magistrate judge, see
28 U.S.C. §636(c), and Bartell prevailed on summary
judgment; the judge also sanctioned Hicklin for its refusal
to admit that Bartell had worked for Axi-Line as an inde-
pendent contractor rather than as an employee. See Fed. R.
Civ. P. 37(c). Hicklin appeals from these decisions. Bartell,
who wants additional recompense for the expense of
litigation, has filed a cross-appeal.
  Two procedural issues come ahead of the merits. Subject-
matter jurisdiction is the first. Both plaintiff Hicklin
Engineering, L.C., and defendant R.J. Bartell & Associates,
L.L.C., are limited liability companies. (The abbreviations
differ because they were organized under different states’
laws; they mean the same, just as both “Corp.” and “Inc.”
designate corporations.) The district court assumed that a
limited liability company, like a corporation, has two
citizenships: its state of organization and its principal place
of business. That’s not right. The citizenship of a limited
liability company is that of its members, see Cosgrove v.
Bartolotta, 150 F.3d 729 (7th Cir. 1998), and its members
may include partnerships, corporations, and other entities
that have multiple citizenships. See Carden v. Arkoma
Associates, 494 U.S. 185 (1990). A federal court thus needs
to know each member’s citizenship, and if necessary each
member’s members’ citizenships.
  R.J. Bartell & Associates has only one member, Bartell,
who is a citizen of Wisconsin. Hicklin has a more com-
plicated structure. Its jurisdictional statement under
Circuit Rule 28(a)(1) listed the states of which lawyers
deemed the members to be citizens but gave no details, and
its corporate disclosure statement under Fed. R. App. P.
26.1 and Circuit Rule 26.1 was faulty. So at oral argument
we directed counsel to file a supplemental statement
detailing Hicklin’s members and their citizenships. The
statement reveals that Hicklin has 65 members, some of
which have multiple citizenships—and some of these posed
Nos. 05-2282 & 05-2302                                       3

complex legal issues. For example, its members include
trusts of which national banks are trustees. The citizenship
of a trust is that of the trustee, see Navarro Savings Ass’n
v. Lee, 446 U.S. 458 (1980), and until Wachovia Bank v.
Schmidt, 126 S. Ct. 941 (2006), issued six days after this
appeal was argued, there was a distinct possibility that
national banks would be deemed citizens of every state in
which they had offices. But Wachovia Bank held that
national banks are citizens only of the states in which their
main offices are located, and that decision saves this case
from a jurisdictional dismissal even though it turns out that
the list of citizenships that counsel furnished in the Circuit
Rule 28(a)(1) statement is incorrect. Hicklin’s members
include citizens of Alaska, Iowa, North Dakota, Minnesota,
and Missouri, but none is a citizen of Wisconsin.
   The second procedural question is whether we can discuss
in public the district court’s reasoning. Magistrate Judge
Gorence ordered the district clerk to keep both of her
substantive opinions under seal—not just portions that
revealed trade secrets, but the whole opinions. The resolu-
tion of this litigation thus has been concealed from the
public. The judge did not explain what authority permits a
federal court to issue entire opinions in secret. Redacting
portions of opinions is one thing, secret disposition quite
another. We have insisted that litigation be conducted in
public to the maximum extent consistent with respecting
trade secrets, the identities of undercover agents, and other
facts that should be held in confidence. See, e.g., Baxter
International, Inc. v. Abbott Laboratories, 297 F.3d 544 (7th
Cir. 2002); Grove Fresh Distributors, Inc. v. Everfresh Juice
Co., 24 F.3d 893 (7th Cir. 1994); In re Continental Illinois
Securities Litigation, 732 F.2d 1302 (7th Cir. 1984). See
generally Nixon v. Warner Communications, Inc., 435 U.S.
589 (1978). This means that both judicial opinions and
litigants’ briefs must be in the public record, if necessary in
parallel versions—one full version containing all details,
4                                   Nos. 05-2282 & 05-2302

and another redacted version with confidential information
omitted. Hicklin has filed multiple briefs using this proce-
dure; the sealed brief contains a trade secret diagram
omitted from the public brief but otherwise is identical.
  What happens in the federal courts is presumptively open
to public scrutiny. Judges deliberate in private but issue
public decisions after public arguments based on public
records. The political branches of government
claim legitimacy by election, judges by reason. Any step
that withdraws an element of the judicial process from
public view makes the ensuing decision look more like
fiat and requires rigorous justification. The Supreme
Court issues public opinions in all cases, even those said
to involve state secrets. See New York Times Co. v. United
States, 403 U.S. 713 (1971). A district court issued public
opinions in a case dealing with construction plans for
hydrogen bombs. United States v. Progressive, Inc., 467
F. Supp. 990, rehearing denied, 486 F. Supp. 5 (W.D. Wis.),
appeal dismissed, 610 F.2d 819 (7th Cir. 1979). We issued
a public opinion in a case whose subject was attorney-client
confidences that required the parties’ names and many
details to be withheld. See A Sealed Case, 890 F.2d 15 (7th
Cir. 1989). It is impossible to see any justification for
issuing off-the-record opinions in a dispute about drawings
of transmission testing equipment. We inquired at oral
argument whether the district court’s opinions contain any
information that Hicklin claims as a trade secret; we were
told that they do not. Accordingly, there is no reason even
for redaction. The Clerk of this court will place the district
court’s opinions in the public record. We hope never to
encounter another sealed opinion.
  Bartell did not promise to avoid future competition with
Axi-Line. Nor did he promise in writing not to use his
drawings and ideas for any other entity. The district
court concluded that this means that Bartell may do as he
pleases with any information that Axi-Line furnished him,
Nos. 05-2282 & 05-2302                                        5

plus whatever he developed on his own. The second half
of this proposition is unimpeachable. As an independent
contractor, Bartell presumptively owned his work product.
See Community for Creative Non-Violence v. Reid, 490 U.S.
730 (1989). He was free to sell engineering solutions to Axi-
Line on either an exclusive or a non-exclusive basis, just as
lawyers may sell their legal solutions to clients on an
exclusive or non-exclusive basis. In the absence of
an agreement, non-exclusivity is the norm. See ConFold
Pacific, Inc. v. Polaris Industries, Inc., No. 05-1285 (7th Cir.
Jan. 10, 2006), slip op. 11-14 (Wisconsin law).
  Thus a lawyer who develops a new form contract, securi-
ties indenture, or tax shelter when working for Client X
may reuse the language when dealing with Client Y, or may
publish the language in a treatise for all to see and emu-
late, unless he has promised X to keep silent. A software
programmer, working as an independent contractor for
Client Z, who develops a novel way to organize a database
may re-use the source code for another client’s project,
unless he promises otherwise. Norms of the trade might
reverse this presumption, but Hicklin has not proffered any
evidence that a mechanical engineer’s human capital or
knowledge, built up when working for a client, belong to
that client rather than the engineer.
  Things are otherwise when the client rather than the
independent contractor develops the information. Then the
client presumptively owns the data, and the contractor may
use it only with the client’s consent. Again the legal profes-
sion supplies an example. Bidder decides to make a tender
offer for Target and supplies that information to Lawyer so
that the necessary forms and contracts may be prepared.
Lawyer is free to use (or re-use) form templates developed
when working for other clients but is not free to disclose (or
trade on) the impending offer, for that information is
Bidder’s property. See United States v. O’Hagan, 521 U.S.
6                                   Nos. 05-2282 & 05-2302

642 (1997). By working on the deal, Lawyer did not acquire
any property rights in the information Bidder supplied.
  The law of trade secrets follows the same approach
to ownership, both in general, see Restatement (Third)
of Unfair Competition §43 comment c (1995), and in Wiscon-
sin. See Wis. Stat. §134.90(2)(a) plus the definition of
“improper means” in §134.90(1); RTE Corp. v. Coatings,
Inc., 84 Wis. 2d 105, 117-18 (1978) (“Where what is thought
to be a trade secret is disclosed [to an independent contrac-
tor], the question posed is whether, under the circum-
stances, the recipient of the information knew or should
have known that the information is a trade secret and that
the disclosure was made in confidence. . . . A confidential
relationship does not arise when the parties are dealing at
arm’s length and the recipient has not been put on notice of
the confidential nature of the disclosure.”). See also 2-7
Milgrim on Trade Secrets §7.01[9][e] (discussing the
situation of consulting engineers). So Bartell did not acquire
any rights in Axi-Line’s trade-secret data just because he
used those data in the performance of his duties.
   Would the record permit a reasonable jury to find that
Bartell knew that Axi-Line treated at least some of the data
it provided as trade secrets? It would. The information’s
nature—dimensions, materials, and tolerances on the parts
used to make dynamometers and other equipment—is one
reason. Many of these details (especially materials and
tolerances) would be hard to obtain by reverse engineering.
See United States v. Lange, 312 F.3d 263 (7th Cir. 2002)
(criminal conviction for disclosing information of this kind).
Axi-Line’s safeguards, of which Bartell knew, are another
reason. The firm took standard precautions, such as
perimeter fences, excluding unescorted visitors, and keeping
data under lock and key. Bartell himself suggested to Axi-
Line that certain plans (which Bartell had converted from
hand-drawn blueprints to computer-assisted-design models)
bear confidentiality legends, and Axi-Line told Bartell to
Nos. 05-2282 & 05-2302                                       7

include appropriate legends in his CAD models. Even
bearing the legend, these detailed models (and printouts
made from them) were not shown to customers or competi-
tors.
  From Bartell’s knowledge, and the norm that a client’s
information remains its property after an independent
contractor has worked with the data, a reasonable jury
could infer that Bartell implicitly agreed to use the data for
Axi-Line’s benefit rather than his own. Wisconsin does not
require an express, written contract of confidentiality. RTE
says as much, and although that decision predates the
state’s adoption of the Uniform Trade Secrets Act, every
decision we could find applying that statute holds that an
implied undertaking to abide by the trade’s norms of
confidententiality suffices. See, e.g., News America Market-
ing In-Store, Inc. v. Marquis, 86 Conn. App. 527, 862 A.2d
837 (2004); Frantz v. Johnson, 116 Nev. 455, 999 P.2d 351
(2000); Stampede Tool Warehouse, Inc. v. May, 272 Ill. App.
3d 580, 651 N.E.2d 209 (1st Dist. 1995); Marsico v. Cole,
1995 Del. Ch. LEXIS 78 (1995). And breach of an implicit
promise to hold information for the client’s sole benefit in
turn violates the Trade Secrets Act, Wis. Stat. §134.90(2)(a).
  There remains the question whether Bartell did disclose
or use Axi-Line’s confidential information improperly.
Bartell contends that he did not reveal to anyone else the
CAD models that he built using Axi-Line’s data but just
looked at them to ensure that the new plans he was creat-
ing for his own business did not contain any obvious
blunders. Whether that is permissible under Wisconsin law
is an interesting question, but not one we need resolve,
given Hicklin’s contention that Bartell copied and used the
trade secrets wholesale rather than capitalizing on more
general knowledge that he had gained while working on
testing gear. There will be time enough to address the legal
issue if the trier of fact should conclude that Bartell’s “just
checking” version is the right one.
8                                    Nos. 05-2282 & 05-2302

  On remand the parties and trier of fact will need to
separate Axi-Line’s contributions (which Hicklin owns) from
Bartell’s (which he owns), determine which of Axi-Line’s
data are trade secrets, ascertain whether Bartell recognized
that these data are confidential, pin down the use that
Bartell made of those trade secrets, and if necessary decide
whether Wisconsin law permits such a use. If Hicklin
prevails on these issues, the district court will have to select
an appropriate remedy.
  Hicklin has presented additional legal theories, but the
district court need not consider them. These common-law
approaches have been superseded by the Trade Secrets Act.
See §7(a) of the Uniform Trade Secrets Act, enacted as Wis.
Stat. §134.90(6); ConFold, slip op. 12-14 (Wisconsin law);
Hecny Transportation, Inc. v. Chu, 430 F.3d 402 (7th Cir.
2005) (discussing the Illinois version of this provision). They
would in any event add little or nothing to the statutory
remedy, so they should be put to one side if only to stream-
line the litigation.
  With respect to the award of attorneys’ fees under Rule
37(c)(2), the district court acted properly. Hicklin alleged,
ambiguously, that “Axi-Line engaged [Bartell’s] services.”
Bartell asked Hicklin to admit that he had been engaged as
an independent contractor rather than an employee. Hicklin
refused to do this, and Bartell supported his position so
thoroughly that Hicklin now concedes the matter. Rule 37(c)
directs (and does not just permit) a district court to award
attorneys’ fees and other costs to the party put to such proof
by refusal to admit. Hicklin now contends that this issue
was so transparently irrelevant to the litigation that Bartell
should have saved the expense of proof. That’s legally
wrong; the distinction between employee and independent
contractor affects who (presumptively) owns the work
product, as Community for Creative Non-Violence shows.
Anyway, if this was beside the point, why did Hicklin refuse
to admit that Bartell was an independent contractor? Its
Nos. 05-2282 & 05-2302                                     9

intransigence has led us to wonder what other issues in this
litigation have been raised more for the expense they
will force Bartell to bear than for their merit or salience.
  Because Hicklin has largely prevailed on this appeal,
Bartell’s cross-appeal—which asks us to hold that Hicklin’s
suit lacks a reasonable basis and thus leads to fee-shifting
under Wis. Stat. §134.90(4)(c)—is unavailing. But if on
remand Bartell demonstrates that Hicklin has been exag-
gerating with respect to the facts, the district court should
take a fresh look at the subject.
  The judgment is vacated (except with respect to the award
under Rule 37) and the case is remanded for proceedings
consistent with this opinion.

A true Copy:
      Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—2-22-06