Court Opinion

ID: 2729785
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:48:11.283467+00
Date Added: 2024-06-11T09:54:55.668573
License: Public Domain

FOR PUBLICATION
                                                      FILED
                                                    Aug 10 2012, 8:26 am

                                                           CLERK
                                                         of the supreme court,
                                                         court of appeals and
                                                                tax court

ATTORNEYS FOR APPELLANT:                    ATTORNEYS FOR APPELLEE:

JUDY S. OKENFUSS                            GARY P. PRICE
THOMAS E. MIXDORF                           SARA R. BLEVINS
BRIAN J. PAUL                               MATTHEW S. TARKINGTON
STEPHEN E. REYNOLDS                         Lewis & Kappes, P.C.
Ice Miller, LLP                             Indianapolis, Indiana
Indianapolis, Indiana

                             IN THE
                   COURT OF APPEALS OF INDIANA

HDNET LLC,                                  )
                                            )
     Appellant,                             )
                                            )
             vs.                            )      No. 49A02-1112-PL-1146
                                            )
NORTH AMERICAN BOXING COUNCIL,              )
                                            )
     Appellee.                              )

                   APPEAL FROM THE MARION SUPERIOR COURT
                        The Honorable Thomas J. Carroll, Judge
                          Cause No. 49D06-0803-PL-12012

                                 August 10, 2012

                          OPINION – FOR PUBLICATION

DARDEN, Senior Judge
                            STATEMENT OF THE CASE

      HDNET LLC (“HD”) appeals the trial court’s grant of partial summary judgment

in favor of North American Boxing Council (“NABC”).

      We reverse and remand.

                                        ISSUES

      1.     Whether the trial court erred in determining as a matter of law that
             the Indiana Uniform Trade Secrets Act (“IUTSA”) did not preempt
             NABC’s common law claim for idea misappropriation where the
             claim did not rise to the level of a statutorily-defined trade secret.

      2.     Whether the trial court erred in determining as a matter of law that
             the IUTSA did not preempt NABC’s statutory claim for civil
             conversion of its idea.

                                        FACTS

      HD is a television channel that broadcasts exclusively in high-definition via cable

and satellite. Its programming is varied and has included mixed martial arts (“MMA”).

NABC is a professional boxing and MMA sanctioning body.

      In 2007, HD and NABC exchanged a series of e-mails discussing a broadcast

arrangement involving HD’s broadcast of MMA events and the future development of

weekly broadcasts of a MMA fight series.         Included in one of the e-mails was

information wherein NABC outlined how NABC and HD could develop a “unique

branded fight series for [HD]” that was significantly different from the “single entity”

model then in use by the major players in the MMA industry. (App. 19). Further

discussions between the parties fleshed out the information outlined in the e-mail. The
                                           2
parties did not enter into a contract; however, NABC considered the information

communicated to HD to be a protectable commercial idea.

       On March 17, 2008, NABC filed a complaint against HD in which it alleged the

following facts:

       On or about August 22, 2007, [Mark Cuban, HD’s owner] formed HDNet
       Fights. HDNet Fights is a Delaware corporation with principal offices in
       Dallas, Texas and Denver, Colorado. HDNet Fights, upon information and
       belief, was formed for the purpose of operating a business that sanctions,
       promotes and broadcasts mixed martial arts using the confidential and
       proprietary information of NABC.

       ****

       NABC has been deprived of the value of its confidential, proprietary
       information, despite the promises of HDNet. NABC seeks recovery of all
       monies derived from HDNet’s unlawful usurpation of NABC’s information
       and business opportunity.

(App. 22, 24). Based upon these facts, NABC alleged the following: Count I: Idea

Misappropriation; Count II: Unfair Competition; Count III: Breach of Oral Contract;

Count IV: Breach of Implied Covenant of Good Faith and Fair Dealing; Count V:

Negligence; Count VI: Misappropriation of Trade Secrets; Count VII: Conversion of

Trade Secrets; and Count VIII: Promissory Estoppel.

       In its May 31, 2011 scheduling order, the trial court acted upon a request by the

parties and instructed them to file appropriate motions and supporting memoranda

addressing the preemption provision of the IUTSA and its application to NABC’s idea

misappropriation and conversion claims. On June 10, 2011, NABC filed a motion for

                                           3
partial summary judgment addressing the preemption provision and NABC’s claim of

Count I: Idea Misappropriation and Count VII: Conversion of Trade Secrets,1 and HD

filed a response. The trial court held a hearing on the matter, and on October 18, 2011, it

granted partial summary judgment, finding that NABC’s claims were not preempted

under the IUTSA.

        On November 15, 2011, HD filed a motion to certify the trial court’s order for

interlocutory appeal, which the trial court granted. On February 3, 2012, we granted

HD’s motion to accept jurisdiction.

                                             DECISION

                                        Standard of Review

        HD contends that the trial court erred in granting partial summary judgment on

NABC’s claim that the IUTSA does not preempt NABC’s common law idea

misappropriation and civil conversion counts. Summary judgment is appropriate where

there is no genuine issue of material fact and the moving party is entitled to judgment as a

matter of law. Ind. Trial Rule 56(C). Questions of statutory construction are particularly

amenable to resolution by summary judgment, as they are pure questions of law.

Koppin v. Strode, 761 N.E.2d 455, 460 (Ind. Ct. App. 2002), trans. denied. We review

questions of law de novo and owe no deference to the trial court’s legal conclusions. Id.

1
  Although NABC characterized Count VII in its complaint as the conversion of “trade secrets,” it
referred to the count in its motion for summary judgment on preemption simply as “conversion” and
contended that it could assert such an independent claim even if it failed to prove a trade secret. (App.
885).

                                                   4
           Background of the Uniform Trade Secrets Act (“UTSA”) and the IUTSA

       The UTSA was drafted by the National Conference of Commissioners on Uniform

State Laws (“Commissioners”) in 1979 and amended in 1985.               14 Uniform Laws

Annotated, Uniform Trade Secrets Act With 1985 Amendments, 529, 530 (historical

notes) (2005). The Commissioners expressed the following rationale for drafting of the

UTSA:

       Notwithstanding the commercial importance of state trade secret law to
       interstate business, this law has not developed satisfactorily. In the first
       place, its development is uneven . . . Secondly, even in states in which there
       has been significant litigation, there is undue uncertainty concerning the
       parameters of trade secret protection, and the appropriate remedies for
       misappropriation of a trade secret.

Id. at 531. The Commissioners intended that the UTSA “be applied and construed to

effectuate its general purpose to make uniform the law with respect to the subject of this

Act among states enacting it.” Id. § 8 at 656 (brackets omitted). This general purpose

has been stated as follows:

       [T]o create a uniform business environment [with] more certain standards
       for protection of commercially valuable information, and to preserve a
       single tort action under state law for misappropriation of trade secret as
       defined in the statute and thus to eliminate other tort causes of action
       founded on allegations of misappropriation of information. If the UTSA’s
       preemption provision only preempted claims of misappropriation of
       information that meets the statutory definition of a “trade secret,” the
       provisions purpose would be undermined. In every instance where a
       plaintiff could not meet the statutory requirements of the Uniform Act, the
       court would be forced to re-analyze the claim under the various common
       law theories. Such a result would undermine the uniformity and clarity that
       motivated the creation and passage of the Uniform Act.

                                             5
Firetrace USA, LLC v. Jesclard, 800 F. Supp.2d 1042, 1048-49 (D. Ariz. 2010),

reconsideration denied (citations omitted).

       In 1982, Indiana adopted the UTSA “substantially as promulgated by the

[Commissioners].” Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 917 (Ind. 1993). The

Prefatory Note to the UTSA declares not only that the act is “a substitution for unitary

definitions of trade secret, but that it ‘also codifies the results of the better reasoned cases

concerning the remedies for trade secret misappropriation.’” Id. (quoting 14 Uniform

Laws Annotated, Uniform Trade Secrets Act With 1985 Amendments, 435 (prefatory

note) (1990)). “It is thus apparent that Indiana legislators, adopting the UTSA, sought the

uniform application of the UTSA definitions of trade secret consistent with the

application of the act in other adopting jurisdictions.” Id. Therefore, “case law from

other UTSA jurisdictions becomes relevant authority for construction of trade secret law

in Indiana.” Id. at 918.

       The IUTSA contains two provisions that are central to the case before us. Indiana

Code section 24-2-3-1(b) provides that the IUTSA “shall be applied and construed to

effectuate its general purpose to make uniform the law with respect to the subject matter

of this chapter among states enacting the provisions of this chapter.” Indiana Code

section 24-2-3-1(c), the preemption provision, provides that the IUTSA “displaces all

conflicting law of this state pertaining to the misappropriation of trade secrets, except

                                               6
contract law and criminal law.”2 This preemption provision is stronger than that found in

either the 1979 or 1985 versions of the UTSA. Infinity Prod., Inc. v. Quandt, 810 N.E.2d

1028, 1033 (Ind. 2004); AGS Capital, 884 N.E.2d at 307.

                                 Rules of Statutory Construction

       In statutory construction, our primary goal is to ascertain and give effect to the

intent of the legislature. U.S. Steel Corp. v. Northern Ind. Pub. Serv. Co., 951 N.E.2d

542, 553 (Ind. Ct. App. 2011), trans. denied. The language of the statute itself is the best

evidence of legislative intent, and we must give all words their plain and ordinary

meaning unless otherwise indicated by the statute. Id. Furthermore, we presume that the

legislature intended statutory language to be applied in a logical manner consistent with

the statute’s underlying policies and goals. Id. We must read the statute as a whole and

excessive reliance on a strict literal meaning should be avoided. Jones v. Farmers Mut.

Ins. Co., 926 N.E.2d 116, 121 (Ind. Ct. App. 2010).

1.     Idea Misappropriation

       NABC contends that the IUTSA is unambiguous, and that if the language of the

preemption provision of Indiana Code section 24-2-3-1 is given its plain meaning, then it

applies only to actions where a “conflicting law” that “pertains” to the misappropriation

2
 AGS Capital Corp. v. Prod. Action Int’l, LLC, 884 N.E.2d 294, 308 n.4 (Ind. Ct. App. 2008) and courts
across the country have used the term “preemption” as a synonym for “displace.” We follow their lead.

                                                  7
of “trade secrets” is at issue. NABC reasons that the preemption provision applies only

to “trade secrets” and that its claim of idea misappropriation does not “pertain” to a

“trade secret” as the term is used in the IUTSA. Thus, NABC concludes that its idea

misappropriation claim cannot be “conflicting law.”        NABC claims that any other

construction would read more into the statute than the plain language allows. NABC’s

Br. at 12-13.

       As stated above, one essential goal of the UTSA is to make uniform the law of the

states adopting it. Indeed, our legislature specifically adopted this goal in Indiana Code

section 24-2-3-1(b).   NABC’s construction of the preemption provision completely

disregards the legislature’s directive that the IUTSA is to be “applied and construed to

effectuate its general purpose to make uniform the law . . . .” Thus, NABC fails to read

Indiana Code section 24-2-3-1 as a whole, ignoring subsection (b) to excessively rely on

the isolated terms of subsection (c). The result is a narrow reading of the IUTSA that

does not comport with the intent of our legislature or the majority of courts that have

analyzed the preemption provisions of their uniform trade secret acts.

       NABC’s construction of IUTSA’s preemption provision is reminiscent of that

proposed by the plaintiff in BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 123 Hawai’i

314, 235 P.3d 310, 319 (Haw. 2010), wherein BlueEarth argues that

       the plain language of the preemption provision [“HUTSA”] . . . refers only
       to “trade secrets” as defined by the Act. The preemption provision nowhere
       refers to “other confidential information.” It follows, then, that the statute
       only anticipates preemption of common law claims involving trade secrets.
                                             8
       Since there is no statutory language regarding preemption of other
       confidential information not rising to the level of trade secrets, there is no
       reason to think such preemption was intended.3

       In rejecting BlueEarth’s construction of the Hawai’i preemption statute, the

Supreme Court of Hawai’i recognized that a minority of courts have adopted the “plain

language” construction of USTA-inspired state statutes. However, the BlueEarth court

joined the majority of jurisdictions in holding that the USTA’s preemption provision

“abolishes all free-standing alternative causes of action for theft or misuse of

confidential, proprietary, or otherwise secret information falling short of trade secret

status (e.g. idea misappropriation, information piracy, theft or commercial information,

etc.).” Id. at 321 (quoting Hauck Mfg. v. Astec Indus., 375 F. Supp.2d 649, 655 (E.D.

Tenn. 2004)).

       The rationale for these majority decisions has been explained as follows:

       3
         (a) Except as provided in subsection (b) of this chapter, this chapter displaces
       conflicting tort, restitutionary, and other law of this State providing civil remedies for
       misappropriation of a trade secret.

       (b) This chapter does not affect:

                (1) Contractual remedies, whether or not based upon misappropriation of a trade
                secret;

                (2) Other civil remedies that are not based upon misappropriation of a trade
                secret; or

                (3) Criminal remedies, whether or not based upon misappropriation of a trade
                secret.

HRS § 482B-8 (2008).

                                                   9
      States adopting statutory provisions analogous to the UTSA’s section 7
      intend that at least some prior law relating to the protection of commercial
      information be displaced. Permitting litigants in UTSA states to assert
      common-law claims for misappropriation or misuse of confidential data
      would reduce the UTSA to just another basis for recovery and leave prior
      law effectively untouched. Further, by expressly exempting “contractual
      remedies, whether or not based upon misappropriation of a trade secret”
      and “other civil remedies that are not based upon misappropriation of a
      trade secret” from its preemptive penumbra, the UTSA makes clear that
      only those claims addressing or arising out of wrongs distinct from pure
      information piracy survive passage of the trade secret statute. Indeed,
      contrary interpretations of the UTSA’s “Effect on Other Law” provision . . .
      effectively negate the UTSA’s goal of promoting uniformity in “trade
      secrets” law. Additionally, these contrary interpretations render the
      statutory preemption provision effectively meaningless.

Id. at 321-22 (quoting Unikel, Bridging the “Trade Secret” Gap, 29 Loy. U. Chi. L.J. at

887-88 (footnotes omitted)). The UTSA creates a “two-tiered” approach to protection of

commercial knowledge, under which “information is classified only as either a protected

‘trade secret’ or unprotected ‘general skill and knowledge.’” Id. at 322 (quoting Unikel

at 867-68 (footnote omitted)).

      Although such an interpretation of Indiana Code section 24-2-3-1(c) seems harsh,

we emphasize that our statute does not preempt claims for misappropriation of

information or ideas that are protected by contract. See BlueEarth, 235 P.3d at 322. To

the extent that a plaintiff is seeking to recover for the defendant’s misappropriation of

plaintiff’s intellectual property, it is seeking to recover for misappropriation of trade

secrets. These secrets are protected under the IUTSA, and

      a plaintiff who complains of the defendant’s use of its information, but who
      cannot prove that the information is secret, should not be able to rely on
                                           10
        one of these [common law] torts (or any other common law variants) to
        bypass the requirement that it prove secrecy. If trade secret law does not
        preempt these torts, the point of the secrecy requirement will be lost, and
        with it the benefits of dissemination of new inventions.
Id. (quoting Mark A. Lemley, The Surprising Virtues of Treating Trade Secrets as IP

Rights, 61 Stanford L.Rev. 311, 345-46 (Nov. 2008). In short,

        A claim cannot be preempted or not preempted based entirely upon whether
        or not the information at issue qualifies as a trade secret. If the information
        is a trade secret, the plaintiff’s claim is preempted: if not, the plaintiff has
        no legal interest upon which to base his or her claim. Either way, the claim
        is not cognizable.

Hauck, 375 F. Supp.2d at 657.

        NABC’s interpretation of the IUTSA would encourage piece meal litigation and

would thus fail to implement the legislature’s intended goal of uniformity. Accordingly,

we conclude that the trial court’s summary judgment order is erroneous as a matter of

law.4

4
 Although the parties do not address the standard of proof, we note that the standard is important. As one
court has stated:

        [P]erhaps a better formulation of the UTSA preemption standard would be a “same
        proof” standard under which a claim will be preempted when it necessarily rises or falls
        based on whether the defendant is found to have “misappropriated” a “trade secret” as
        those two terms are defined in the UTSA. Stated another way, if proof of a non-UTSA
        claim would also simultaneously establish a claim for misappropriation of trade secrets, it
        is preempted irrespective of whatever surplus elements or proof were necessary to
        establish it.

Hauck, 375 F. Supp.2d at 658.

                                                    11
2.     Conversion

       HD contends that the trial court erred in granting summary judgment on NABC’s

civil conversion claim. In evaluating HD’s contention, it is important to understand

NABC’s argument. First, NABC claims that its civil conversion claim falls within the

preemption provision of the IUTSA, which as stated above, provides that the IUTSA

“displaces all conflicting law of this state pertaining to the misappropriation of trade

secrets, except contract law and criminal law.” I.C. § 24-2-3-1(c). NABC points to AGS

Capital as particularly instructive. In AGS Capital, we examined a civil RICO claim

related to the theft of trade secrets and specifically addressed the question of whether that

claim was preempted by the IUTSA. 884 N.E.2d at 306. We held that the RICO claim

was not preempted by the IUTSA because the civil remedy is derivative of criminal law.

Id. at 308.

       NABC argues that civil conversion is also “derivative” of criminal law because it

provides a civil remedy for a crime.

       However, our analysis in AGS Capital is more nuanced than NABC’s reading of

the case. In reaching our conclusion in AGS Capital, we considered that civil RICO and

criminal RICO were part of the same statutory scheme having a significant deterrent

purpose. Id. at 308. Although the civil and criminal RICO statutes were codified in

                                             12
different locations in the Indiana Code, they were enacted as part of the same public law.5

In AGS Capital, we emphasized that the civil RICO statute was part of a conscious one-

two punch adopted by the legislature to combat “the more sinister forms of corruption

and criminal activity.” Id. We stated:

       [T]he preemption provision of IUTSA should not prohibit RICO from
       fulfilling its purpose where the form of the corruption involves the
       systematic acquisition of economically valuable information through the
       artifice of competitors’ employees in order to gain an unlawful economic
       advantage in the marketplace. RICO is structured to reach and punish these
       diabolical operations that are a greater threat to society than random theft.
       In consideration of the purpose and goals of the entire RICO framework,
       we conclude that the civil remedy portion providing for a private action is
       derivative of the criminal law. Thus, this type of action is not preempted by
       IUTSA.

Id. We further explained that our ruling would result in a greater disincentive for the

“strategic, repetitive theft of trade secrets” because under the civil RICO provision treble

damages and attorney fees are mandatory, whereas under the IUTSA they are

discretionary.   Id. at 308-09.      It is for these reasons that the civil RICO statute is

“derivative,” not simply because it provides a civil remedy for a crime.

       The same is not true of the Crime Victim’s Relief Act (“the Act”), which contains

Indiana Code section 34-24-3-1, the statute that defines civil conversion. The Act was

5
 The civil RICO statute, Indiana Code section 34-24-2-6 (formerly Indiana Code section 34-4-30.5-5),
and the criminal RICO statute, Indiana Code section 35-45-6-2, were both enacted by P.L. 199-1980.

                                                13
not enacted as part of the same statutory scheme as criminal conversion. 6 The Act is not

part of a one-two punch—or “two fronts and a field of land mines to deter and ultimately

eliminate egregious and schematic criminal activity”—that makes up the unique RICO

statutory scheme. See AGS Capital, 884 N.E.2d at 308. Rather, the Act provides a civil

remedy for a host of crimes, including random theft. Its focus is on providing the victim

“relief” for the alleged crime, allowing him or her to recover attorney fees and costs in

pursuing the action. See I.C. § 34-24-3-1. Thus, it is not “derivative” in the way that we

held that the civil RICO statutory scheme is derivative of the criminal RICO scheme.

       The upshot is that NABC’s civil conversion allegation does not delineate a

criminal act; it merely outlines another allegation of civil misappropriation of NABC’s

ideas. Thus, the conversion action is not saved by the criminal law exception to the

IUTSA’s preemption provision.

                                          CONCLUSION

       The IUTSA is intended to foster uniformity in the definition of state laws, and a

party may not read this design out of the statutory scheme under the guise of “plain

language” or any other rule of construction.              NABC’s “plain language” reading of

IUTSA’s preemption provision lays waste to both legislative intent of the IUTSA and the

overall intent of the UTSA. Accordingly, the trial court erred in granting summary

judgment on NABC’s idea misappropriation claim.
6
 The civil conversion statute is part of the Crime Victim’s Relief Act that was enacted by P.L. 26-1977,
while the criminal conversion statute, Indiana Code section 35-43-4-3, was enacted by P.L. 148-1976.

                                                  14
      NABC’s civil conversion claim does not fall within the “criminal law” exception

to the IUTSA’s preemption provision. Therefore, the trial erred in granting summary

judgment on the claim.

      Reversed and remanded for further proceedings.

FRIEDLANDER, J., and BROWN, J., concur.

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