Court Opinion

ID: 4384185
Source: CourtListenerOpinion
Date Created: 2019-04-04 16:00:43.523182+00
Date Added: 2024-06-11T12:03:58.569315
License: Public Domain

United States Court of Appeals
                            For the Eighth Circuit
                        ___________________________

                                No. 18-1075
                        ___________________________

                CMI Roadbuilding, Inc.; CMI Roadbuilding, Ltd.

                       lllllllllllllllllllllPlaintiffs - Appellants

                                           v.

                                   Iowa Parts, Inc.

                       lllllllllllllllllllllDefendant - Appellee
                                      ____________

                     Appeal from United States District Court
                 for the Northern District of Iowa - Cedar Rapids
                                  ____________

                          Submitted: November 14, 2018
                              Filed: April 4, 2019
                                 ____________

Before BENTON, BEAM, and ERICKSON, Circuit Judges.
                           ____________

BEAM, Circuit Judge.

      CMI Roadbuilding appeals the district court's1 adverse grant of summary
judgment in favor of Iowa Parts in this trademark secrets and intellectual property
case. We affirm the district court.

      1
       The Honorable Linda R. Reade, United States District Judge for the Northern
District of Iowa.
I.    BACKGROUND

       CMI Roadbuilding owns assets related to the manufacturing of asphalt and
concrete plants, as well as landfill and dirt compaction equipment. CMI
Roadbuilding purchased these from a host of other companies, and after a series of
mergers and acquisitions, the end result is that CMI Roadbuilding now2 holds assets,
including intellectual property, from companies formerly called Terex Corporation;
Cedarapids, Inc.; and Standard Havens; as well as the CMI Corporation's own line of
asphalt plants (collectively CMI Roadbuilding). As noted, CMI Roadbuilding is in
the business of manufacturing and selling asphalt plants, related equipment, and for
a time, also sold replacement parts. Sometime around 1999, Terex significantly
downsized its operation–from 1200 employees to 200–and stopped selling
replacement and after-market parts for its products, and instead sought vendors to do
so for them. CMI Roadbuilding sent the technical drawings, plans and
specifications–"engineering documents" that are required to make an asphalt plant
and its component parts–to the vendors who were in the business of making these
replacement and after-market parts.

       In 2002, Iowa Parts got into the market of becoming a vendor of replacement
parts that were previously designed and manufactured by Terex, Cedarapids, Standard
Havens, and CMI. Iowa Parts was formed by the former head of Standard Havens'
Parts Department, Michael Hawkins. Iowa Parts represents that its parts meet
"original equipment manufacturer" (OEM) specifications. Several employees at Iowa
Parts used to work at the various companies that merged into CMI Roadbuilding.
Included in this group was Jay King, former parts manager at Terex; Rick Merritt, a
draftsman for Cedarapids and Terex; and Timothy Franck, who worked in some

      2
        The disparate timing of these various mergers and acquisitions makes
reference to the various companies and parties somewhat confusing. For instance,
while Terex acquired Cedarapids in 1999, CMI Roadbuilding did not acquire Terex
until 2013, after many of the key events at issue in this dispute took place.

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capacity for Cedarapids and Terex. In order to build the parts, Iowa Parts approached
other vendors who had been given engineering documents from CMI Roadbuilding
and its predecessors, and asked if those vendors would manufacture parts for Iowa
Parts. Some of the vendors additionally provided drawings to Iowa Parts that they
had obtained from CMI Roadbuilding. Iowa Parts also "reverse engineered" other
component parts by using a string line and a tape measure.

       On May 29, 2002, Terex sent a letter to King, reminding him of his duty of
loyalty to his former company and that it would be "a crime" for him to disclose any
of CMI Terex's trade secrets without authorization. The letter also stated that it knew
Iowa Parts had been contacting and recruiting Cedarapids customers. Undeterred,
Iowa Parts continued manufacturing component parts. As evidence of CMI
Roadbuilding's knowledge of this, during deposition testimony, the parts manager for
CMI Roadbuilding testified that Iowa Parts directly competed with CMI
Roadbuilding from Iowa Parts' inception in 2002. The manager noted that during this
time frame she was perplexed as to how Iowa Parts could quickly and easily provide
customers with quotes for parts, while she at CMI Roadbuilding struggled to provide
price information about component parts for its own products. Evidence in the
summary judgment record also indicates that Iowa Parts advertised regularly in trade
magazines between 2002 and 2014, and that Terex advertised in the same magazine.
Iowa Parts also attended and advertised at prominent asphalt trade shows.
Representatives of Terex attended at least one of these same trade shows. Further,
Iowa Parts' current website, www.iowapartsusa.com, which began operating in July
2011, advertises its business model, the parts it manufactures for asphalt plants, and
notes that its employees gained knowledge in the business while working for CMI
Roadbuilding's predecessors.

      More recently, and what amounts to the real genesis of the current dispute,
Iowa Parts transitioned from making smaller and cheaper ($50 to $250) parts to larger
component parts, which cost more in the range of $300,000 to $400,000. Once CMI

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Roadbuilding found out about this turn of events, CMI Roadbuilding instituted the
present action on February 22, 2016, alleging: (1) Iowa Parts violated the Defend
Trade Secrets Act of 2016 (DTSA), 18 U.S.C. § 1836, by converting CMI
Roadbuilding's trade secrets; (2) that Iowa Parts violated the similar Iowa trade
secrets law, Iowa Uniform Trade Secrets Act (UTSA), Iowa Code § 550; (3) a
common law claim that Iowa Parts converted its trade secrets; and (4) that Iowa Parts
was unjustly enriched by taking CMI Roadbuilding's trade secrets.

        Ultimately, CMI Roadbuilding moved for summary judgment, and Iowa Parts
filed a competing motion for summary judgment, alleging that the three-year statute
of limitations on the statutory claims had run because CMI Roadbuilding knew much
earlier than February 2013 what Iowa Parts was doing, and that CMI Roadbuilding
did not keep the trade secrets "secret" because they distributed them to several
vendors. The district court agreed with Iowa Parts on the statute of limitations
argument, rejecting CMI Roadbuilding's theory that the "discovery" doctrine should
toll the statute because CMI Roadbuilding knew, or should have known, well before
February 2013 that its trade secrets were being used by Iowa Parts.

       With regard to the conversion claim, the court found that even if a longer five-
year statute of limitations did not bar the conversion action, conversion is the "civil
equivalent" to theft. The court determined that while conversion could be available
in a trade secrets claim if the offending party actually interfered with the original
owner's use of the secrets, in this case, Iowa Parts' use of the engineering documents
has not actually deprived CMI Roadbuilding of any of its trade secrets. The court
noted that CMI Roadbuilding has never lost the ability to control and utilize the
documents it maintains, and it still retains all of the engineering documents. Finally,
with regard to unjust enrichment, the court found that CMI Roadbuilding would have
had an adequate remedy at law if it had timely brought suit, and thus, the equitable
doctrine of unjust enrichment was unavailable. CMI Roadbuilding appeals.

                                         -4-
II.   DISCUSSION

      Summary judgment is appropriate "if the movant shows that 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). "Summary judgment is proper 'if the pleadings, the
discovery and disclosure materials on file, and any affidavits show'" an absence of a
genuine dispute as to a material fact. Torgerson v. City of Rochester, 643 F.3d 1031,
1042 (8th Cir. 2011) (en banc) (quoting Fed. R. Civ. P. 56(c)(2)). Our review is de
novo. Id.

      A.     Statutory Causes of Action

        The DTSA creates a private right of action for an owner of a trade secret when
that secret has been misappropriated, if the secret relates to a product used in
interstate commerce. 18 U.S.C. § 1836. Trade secrets include, as relevant here,
"scientific, technical . . . engineering information, including patterns, plans, . . .
designs." Id. § 1839(3). However such information only qualifies as a trade secret
if the owner has "taken reasonable measures to keep such information secret" and the
information has economic value. Id. § 1839(3). "Misappropriation" essentially
means to acquire the trade secret of another by improper means and without the
owner's consent. Id. § 1839(5)-(6). The UTSA is similar and both statutes have a
three-year statute of limitations for bringing a claim for trade secret misappropriation.
See 18 U.S.C. § 1836(d); Iowa Code § 550.8. CMI Roadbuilding brought the instant
action on February 22, 2016. Iowa Parts began doing business in or around 2002,
with CMI Roadbuilding's abundant knowledge. In order to succeed in litigation
under both statutes, CMI Roadbuilding must not have had actual or imputed
knowledge of a violation prior to February 22, 2013, for the claims to survive
summary judgment. CMI Roadbuilding argues that it did not "discover" Iowa Parts
was actually using trade secrets until the more expensive parts were being produced
in 2016, and that the discovery rule tolls application of the statute of limitations.

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       The discovery rule tolls the statute of limitations until such time as the injured
person knows or in the exercise of reasonable care should know, the fact and cause
of the injury. Woodroffe v. Hasenclever, 540 N.W.2d 45, 47 (Iowa 1995). The rule
extends when the plaintiff "first becomes aware of facts that would prompt a
reasonably prudent person to begin seeking information as to the problem and its
cause." Estate of Montag v. T H Agric. & Nutrition Co., 509 N.W.2d 469, 470 (Iowa
1993). The ultimate focus is whether the plaintiff was aware a problem existed.
Franzen v. Deere & Co., 377 N.W.2d 660, 662 (Iowa 1985). Once a plaintiff is on
inquiry notice, he is charged with knowledge that a reasonably diligent investigation
would have disclosed, and has a duty to do such an investigation, regardless of the
plaintiff's exact knowledge. Woodroffe, 540 N.W.2d at 48-49. The plaintiff need
only know a problem exists. Id. While this can be an issue for the factfinder, it is not
always so. See, e.g., Shams v. Hassan, 905 N.W.2d 158, 163 (Iowa 2017) (holding
that this inquiry can be one for the factfinder "unless the issue is so clear it can be
resolved as a matter of law"). While Iowa Parts has the burden of proving the statute
of limitations bars the action, CMI Roadbuilding has the burden of proving the
discovery rule tolls application of the statutory bar. John Q. Hammons Hotels, Inc.
v. Acorn Window Sys., Inc., 394 F.3d 607, 610 (8th Cir. 2005).

       Here CMI Roadbuilding cannot establish its burden of proving that the
discovery rule saves its statutory causes of action. In 2002, Terex sent King a letter
indicating a possible problem existed with Iowa Parts and its engineering documents
and warned that it was illegal for it to use them without authorization. Iowa Parts
took no evasive action to conceal its activities; it continued to sell its parts to CMI
Roadbuilding's customers, advertise in common industry trade journals, and promoted
itself with exhibits at an asphalt trade show which representatives from CMI
Roadbuilding's predecessor companies attended. CMI Roadbuilding was likely at the
earliest on inquiry notice at the time its predecessor Terex sent the letter to King in
2002, but also was continuously on notice beyond that time due to Iowa Parts'
advertising, exhibiting, and sales activities.

                                          -6-
        CMI Roadbuilding argues that it could not have discovered that its trade secrets
were being misappropriated, triggering the running of the statute, until the evolution
of Iowa Parts' business into the business of providing large components. It argues
that it reasonably did not know whether Iowa Parts was misappropriating its trade
secrets when it was making smaller parts since those parts can be reverse engineered
and possibly built without engineering documents. This argument ignores the
application of the inquiry notice portion of the discovery rule. As stated above, the
ultimate focus is whether the plaintiff was aware a problem existed. Franzen, 377
N.W.2d at 662. CMI Roadbuilding was on inquiry notice that a problem with
possible misappropriation of its trade secrets might exist well before February 2013.
At the point it was on notice there was a possible problem, it had a duty to
investigate, regardless of its exact knowledge. Woodroffe, 540 N.W.2d at 48-49. As
the district court noted, Iowa Parts established itself as a direct competitor of CMI
Roadbuilding almost as soon as it began operating, as noted by CMI Roadbuilding's
parts manager. It advertised in magazines, it promoted itself at industry trade shows,
and it maintained a website explaining the company's and employees' background and
relation to CMI Roadbuilding and its predecessors. Accordingly, we affirm the
district court's disposition of this issue.

      B.     Conversion

      CMI Roadbuilding next claims the district court erred in granting summary
judgment on its conversion claim. The Iowa statute of limitations for this state law
claim is likely five years, per Iowa Code § 614.1(4) (five-year limitation for injuries
to property); Husker News Co. v. Mahaska State Bank, 460 N.W.2d 476, 477 n.2
(Iowa 1990) (assuming without deciding that this five-year statute of limitations
applied to a conversion claim rather than a general two-year tort statute of limitations
based upon the parties' agreement on the issue). Thus, CMI Roadbuilding must not
have been on inquiry notice before February 2011. Assuming that Iowa law would
even recognize a claim for conversion of intellectual property, e.g., Kendall/Hunt

                                          -7-
Publ'g Co. v. Rowe, 424 N.W.2d 235, 247 (Iowa 1988) (affirming the ruling that
conversion did not extend to protect intellectual property in the form of the design
and layout of a book), as is the case with the statutory claims, it is clear that CMI
Roadbuilding was on notice of a possible problem with its trade secrets as early as
2002, shortly after Iowa Parts formed as a company. Accordingly, the district court
correctly granted summary judgment on the conversion claim.

      C.     Unjust Enrichment

       CMI Roadbuilding's final claim is that Iowa Parts will be unjustly enriched if
CMI Roadbuilding is not allowed to pursue its intellectual property rights claim at
this juncture. The district court held that even if the unjust enrichment claim was not
time-barred, which it likely was, see Iowa Code § 614.1(4), Iowa Parts was entitled
to summary judgment because an equitable claim fails when there is an adequate
remedy at law. Where a party seeks damages pursuant to both a statutory and an
equitable claim, the very existence of the statutory claims bars recovery on the
equitable claim, "even if recovery under the[] statutes is time-barred." United States
v. Bame, 721 F.3d 1025, 1031 (8th Cir. 2013). In Bame, we found that, under
Minnesota law, a time-barred cause of action arising under a fraudulent transfer
statute precluded the plaintiff from asserting an unjust enrichment claim. Id. We
found that it was the existence of, not the efficacy of, an adequate legal remedy that
precluded the equitable claim. Id. CMI Roadbuilding's citation to cases from the
federal district courts of Iowa for the contrary conclusion are inapposite. Case law
from the Iowa state courts indicates that the law in Iowa is the same as, not more
broadly construed, than Minnesota law in Bame. Indeed, Iowa law recognizes that
"[e]quity generally will not provide relief where an adequate remedy at law existed
and defendant was denied that relief for appropriate legal reasons." Mosebach v.
Blythe, 282 N.W.2d 755, 761 (Iowa Ct. App. 1979). See also State ex rel. Palmer v.
Unisys Corp., 637 N.W.2d 142, 154 n.2 (Iowa 2001) ("The adequacy of a legal
remedy is a general limitation on the exercise of equity jurisdiction . . . ."). While

                                         -8-
alternative theories can be pled, a plaintiff cannot recover from both. Mosebach, 282
N.W.2d at 758, 761 (noting that plaintiffs had pleaded equitable issues in the
alternative to their contract claims, which ultimately failed). CMI Roadbuilding
could have had viable claims under the statutory schemes if it had timely brought the
claims. Accordingly, an equitable claim cannot provide alternative relief, and the
district court properly granted summary judgment.

III.   CONCLUSION

       CMI Roadbuilding was on inquiry notice that Iowa Parts was making its
component parts, possibly with its engineering documents and other trade secrets,
starting in 2002 and continuing thereafter. As Iowa Parts notes in its brief, "the only
thing that has changed since 2002 is that Iowa Parts now sells directly competing
parts that are significantly more expensive than they had in the past." Because the
statute of limitations has run on the statutory claims and conversion claim, and the
remaining equitable claim fails on the merits, we affirm the district court.
                        ______________________________

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