Court Opinion

ID: 4351542
Source: CourtListenerOpinion
Date Created: 2018-12-18 17:00:29.381553+00
Date Added: 2024-06-11T14:37:01.782900
License: Public Domain

FILED
                                                                      United States Court of Appeals
                      UNITED STATES COURT OF APPEALS                          Tenth Circuit

                             FOR THE TENTH CIRCUIT                         December 18, 2018
                         _________________________________
                                                                          Elisabeth A. Shumaker
                                                                              Clerk of Court
 HAWG TOOLS, LLC, a Colorado limited
 liability company,

       Plaintiff - Appellant,

 v.                                                           No. 18-1015
                                                 (D.C. No. 1:14-CV-03011-REB-MJW)
 NEWSCO INTERNATIONAL ENERGY                                   (D. Colo.)
 SERVICES, INC.; NEWSCO
 INTERNATIONAL ENERGY SERVICES
 USA, INC., a/k/a Newsco USA, Inc.;
 NEWSCO DIRECTIONAL &
 HORIZONTAL SERVICES, INC.; JOE
 FICKEN, an individual,

       Defendants - Appellees.
                      _________________________________

                             ORDER AND JUDGMENT*
                         _________________________________

Before MATHESON, PHILLIPS, and McHUGH, Circuit Judges.
                  _________________________________

      This appeal concerns whether the second of two lawsuits should proceed.

Both suits concerned a design for part of a tool used in oil and gas drilling.

      *
         This order and judgment is not binding precedent, except under the doctrines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.
       First, in 2013, Hawg Tools (“Hawg”) sued Newsco1 and Joe Ficken in

Colorado state court and won a jury verdict on its claims for misappropriation of a

trade secret, conversion, and breach of contract.

       Second, in 2014, while the appeal in the first suit was pending before the

Colorado Court of Appeals (“CCA”), Hawg sued the same Defendants, again in state

court. This time Defendants removed the case to federal court and moved for a stay

pending the CCA appeal, which was granted.

       After the appeal in the first case ended, Hawg moved to reopen the second case

and amend its complaint. The district court refused, holding it would be futile to proceed

because the doctrine of claim preclusion barred Hawg’s claims in the second case.

       Hawg appeals. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

                                   I. BACKGROUND

       Joe Ficken designed a sealed bearing pack for mud motors used in oil and gas

drilling. His design was assigned to Hawg, which leases mud motors to oil and gas

drilling firms. Mr. Ficken accepted a job at Newsco, which uses mud motors to

provide drilling services.

       In March 2013, Hawg sued Newsco and Mr. Ficken in Colorado state court,

alleging trade secret misappropriation, civil theft, conversion, unjust enrichment, civil

conspiracy, and breach of contract. Hawg prevailed in a jury trial on its

       1
        In both lawsuits described above, Hawg sued Joe Ficken and Newsco
International Energy Services, Inc., Newsco International Energy Services USA, Inc.,
and Newsco Directional & Horizontal Services, Inc. We refer to the three Newsco
defendants as “Newsco.” We use “Defendants” to mean all of the defendants.
                                             2
misappropriation, conversion, and breach of contract claims. The trial court refused

Hawg’s request to enjoin Newsco’s use of the design, explaining that the jury verdict

forms had been insufficiently specific.2 Newsco and Mr. Ficken appealed to the CCA.

       In September 2014, while the appeal was still pending, Hawg again sued

Newsco and Mr. Ficken in Colorado state court, alleging continued misappropriation

of trade secrets, civil theft, and unjust enrichment against Newsco and Mr. Ficken

and breach of contract against Mr. Ficken. It requested a declaratory judgment and

enforcement of the previous court rulings and verdict, asserting that the Defendants

were “continu[ing] to use the Sealed Bearing Pack Design at issue in the Previous

Litigation in their mud motors.” Aplt. App., Vol. I at 22-25.

       Newsco and Mr. Ficken removed the case to federal district court based on

diversity jurisdiction, moved for a stay pending resolution of the appeal in the first case,

and moved to dismiss. While these motions were pending, Hawg amended its complaint,

retaining the same claims and emphasizing that it was “seeking ongoing and future

damages for the Defendants’ use of [its] Sealed Bearing Pack Design.” Id. at 273.

       In March 2015, the federal district court granted the Defendants’ stay motion

and administratively closed the case, “subject to reopening for good cause,” upon

       2
         The jury’s breach of contract verdict was solely against Ficken. Despite the
jury’s verdict against Newsco and Ficken for trade secret misappropriation, the trial
court declined to permanently enjoin Newsco and Ficken from using the bearing pack
design because “the ‘trade secret’ part of [Hawg’s] design ha[d] [not] been adequately
identified by the [jury].” Aplt. App., Vol. III at 616.
                                              3
conclusion of the Colorado appeal in the first case. Id., Vol. II at 451. The court

denied the motion to dismiss without prejudice as moot.

       On December 1, 2016, the CCA decided Hawg Tools, LLC v. Newsco Int’l Energy

Servs., Inc., 411 P.3d 1126 (Colo. App. 2016). It affirmed the judgment against Newsco

and Mr. Ficken for conversion, and against Mr. Ficken for breach of contract. But the

CCA reversed as to trade secret misappropriation, concluding that Hawg “did not prove

that the design of the sealed bearing pack in question was a secret.” Id. at 1130. The

evidence did not show that the design “was different from publicly available designs that

existed before the designer had designed it.” Id. at 1133. The CCA held that the trial

court therefore erred in denying “defendants’ motions for a directed verdict and for

judgment notwithstanding the verdict on Hawg’s claim for misappropriation of a trade

secret,” and stated that “the court should have granted those motions.” Id. at 1135. The

Colorado Supreme Court denied a writ of certiorari. Hawg Tools, LLC v. Newsco Int’l

Energy Servs., Inc., No. 17SC90, 2017 WL 2772254 (Colo. June 26, 2017).

       Upon completion of the appeal in the first case, Hawg moved in the federal district

court to lift the stay and reopen the case, describing the federal case as “a continuation of

[the] Colorado state court case.” Aplt. App., Vol. II at 454. Hawg argued the only issues

left to be decided were “damages for the continued conversion and breach of contract . . .

that the jury found.” Id. at 456.

       Hawg also moved for leave to file a second amended complaint, which deleted

previous claims for trade secret misappropriation and civil theft. It retained claims for

conversion and unjust enrichment (against Newsco and Mr. Ficken) and a claim for

                                              4
breach of contract (against Mr. Ficken). It also continued to request a declaratory

judgment and enforcement of prior state court rulings and the jury verdict. Id. at 460-

490. Hawg said the amendment was necessary to “conform to” the “final outcome of the

Previous Litigation,” the CCA’s opinion, and a magistrate judge’s report and

recommendation on Defendants’ motion to dismiss. Id. at 463. Hawg reiterated that it

was “seeking continuing damages . . . in connection with the issues litigated in the

Previous Litigation.” Id. at 461.

       The district court denied Hawg’s motion to lift the stay and reopen the case,

relying on the doctrine of claim preclusion. It said that Hawg alleged or could have

alleged its claims for conversion, unjust enrichment, and breach of contract in the

previous state court case. The court concluded “it would be futile to reopen this case

to allow [Hawg] to pursue the claims sought to be asserted in its proposed [second]

amended complaint.” Id., Vol. III at 634. It denied the motion to amend the

complaint as moot. Id. Hawg appeals.

                                    II. DISCUSSION

       Hawg frames three issues for review. It argues:

       (1) The district court erred when it denied the motion to reopen and
           effectively dismissed the case.

       (2) The district court erred when it denied Hawg leave to amend the
           complaint.

       (3) The CCA’s reversal of the jury’s verdict finding
           misappropriation of trade secrets was so “manifestly unjust” that
           claim preclusion should not bar Hawg from seeking continuing
           damages for the use of the sealed bearing pack design.

                                             5
      The first two issues turn on (1) whether the district court correctly decided that

proceeding with the case would be futile, and (2) whether it could properly deny the

motion to reopen on the ground of futility. Hawg has waived the third issue. The

following provides background on the district court’s rule for reopening a case, the

Colorado law of claim preclusion, and the standards of review associated with each.

We then turn to our merits analysis.

                   A. Legal Background and Standards of Review

1. Motion to Reopen

      In the District of Colorado, a case that is administratively closed may be

“reopen[ed] for good cause,” D. Colo. Civ. R. 41.2, such as when “the parties wish to

litigate the remaining issues that have become ripe for review,” Am. Family Mut. Ins. Co.

v. Teamcorp, Inc., 835 F. Supp. 2d 1083, 1086 (D. Colo. 2011). The district court may

deny a motion to reopen when the relief sought would be futile. See id.; see also A123

Sys. v. Hydro-Quebec, 626 F.3d 1213, 1216 (Fed. Cir. 2010); Redmond v. Fifth Third

Bank, 624 F.3d 793, 803 (7th Cir. 2010).3

      We typically review a district court’s decision to reopen an administratively closed

      3
        This rule resembles the well accepted proposition that “[a] district court may
deny leave to amend [a complaint] upon a showing of . . . futility of amendment.”
Warnick v. Cooley, 895 F.3d 746, 755 (10th Cir. 2018) (quotations omitted); see
United States v. Pinson, 584 F.3d 972, 977 (10th Cir. 2009). Even closer is the rule
that when “amendment of the complaint would have been futile,” a district court
“d[oes] not abuse its discretion in denying appellant’s motion to reopen his case for
the purpose of amending the complaint.” Cunningham v. Tower Ins. Co., 627 F.
App’x 3, 4 (D.C. Cir. 2015) (unpublished); see Alliance of Auto. Mfrs., Inc. v.
Currey, 610 F. App’x 10, 14 (2d Cir. 2015) (unpublished) (same); Johnson v.
Peralta, 599 F. App’x 430, 432 (3d Cir. 2015) (unpublished) (same).
                                            6
case for abuse of discretion. See United States v. Texas, 457 F.3d 472, 476 (5th Cir.

2006); see generally Baca v. Berry, 806 F.3d 1262, 1269-70 (10th Cir. 2015) (stating that

“it is well settled that the district court has the power to stay proceedings pending before

it and to control its docket for the purpose of economy of time and effort for itself, for

counsel, and for litigants” (brackets and internal quotations omitted)).

       Because Hawg challenges the district court’s refusal to reopen the case on the

grounds of claim preclusion and futility, we must review those underlying issues de

novo. See Pohl v. U.S. Bank, 859 F.3d 1226, 1229 (10th Cir. 2017) (“We review de

novo a district court’s application of claim preclusion.”); Jones v. Norton, 809 F.3d

564, 579 (10th Cir. 2015) (observing, in the context of amending a pleading, that “we

review de novo the legal basis for the finding of futility”).

2. Claim Preclusion

       Claim preclusion, or res judicata, generally prohibits the splitting of actions and

“‘force[s] a plaintiff to explore all the facts, develop all the theories, and demand all the

remedies in the first suit.’” Stone v. Dep’t of Aviation, 453 F.3d 1271, 1279 (10th Cir.

2006) (quoting 18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal

Practice and Procedure § 4408 (2d ed. 2002)). “The preclusive effect of a state court

judgment in a subsequent federal lawsuit generally is determined by the full faith and

credit statute, 28 U.S.C. § 1738, which directs a federal court to refer to the preclusion

law of the State in which judgment was rendered.” Brady v. UBS Fin. Servs., Inc., 538

F.3d 1319, 1327 (10th Cir. 2008) (quotations omitted); see Stifel, Nicolaus & Co. v.

Woolsey & Co., 81 F.3d 1540, 1544 (10th Cir. 1996).

                                               7
       In Colorado, “[c]laim preclusion works to preclude the relitigation of matters that

have already been decided as well as matters that could have been raised in a prior

proceeding but were not.” Argus Real Estate, Inc. v. E-470 Pub. Highway Auth., 109

P.3d 604, 608 (Colo. 2005). “For a claim in a second judicial proceeding to be precluded

by a previous judgment, there must exist: (1) finality of the first judgment, (2) identity of

subject matter, (3) identity of claims for relief, and (4) identity or privity between parties

to the actions.” Id.

       Only the third preclusion element is at issue here. To assess whether claims

share the same identity, Colorado courts look to “‘the transaction, or series of

connected transactions, out of which the action arose,’” id. at 609 (quoting

Restatement (Second) of Judgments § 24 (1982)), and focus on “the injury for which

relief is demanded.” Id. (quotations omitted).

                                        B. Analysis

       The following first addresses whether the claims that Hawg wished to pursue

in the second case were futile. We conclude that they were futile because they were

subject to the doctrine of claim preclusion. Next we address whether the court erred

when it denied the motion to reopen on the ground of futility. We conclude it did not

err. We therefore affirm.

1. Futility

       The district court determined that reopening the case would be futile because

claim preclusion barred the claims that Hawg wished to pursue. We examine each claim

to decide whether this was so.

                                               8
       a. Conversion

       Hawg argues the conversion claim in this case differs from the state court

conversion claim because it seeks relief for the “continued ill effects from [the] initial

violation.” Aplt. Br. at 18. The first conversion claim, it contends, “related to revenues

and profits earned by Newsco using the design prior to trial,” whereas the claim here

concerns financial harm suffered after trial. Id. at 21. The district court disagreed with

this argument, rejecting Hawg’s continuing violation theory because Colorado “law is

plainly to the contrary.” Aplt. App., Vol. III at 631. It held that claim preclusion barred

the claim. We agree with the district court.

       Under Colorado law, “conversion . . . is not a continuing tort.” Emp’rs’ Fire

Ins. Co. v. W. Guar. Fund Servs., 924 P.2d 1107, 1111 (Colo. App. 1996). It is

complete “at the time and place of the misappropriation.” Masterson v. McCroskie,

573 P.2d 547, 551 (Colo. 1978); see also Gates Factory Store v. Coleman, 350 P.2d

559, 560 (Colo. 1960) (“It is well settled that the value of the property taken, plus an

additional amount equal to the legal rate of interest upon such value from the time of

conversion to the time of the trial, is the proper measure of damages in . . .

conversion actions.”).

       Hawg wishes to renew its conversion claim based on post-judgment

“continued wrongful use of the design.” Aplt. Br. at 21. But doing so would split a

claim into separate actions, which claim preclusion prohibits. As the Colorado

Supreme Court said in Argus Real Estate,

              [C]laim preclusion . . . bars a litigant from splitting claims

                                               9
             into separate actions because once judgment is entered in
             an action it extinguishes the plaintiff’s claim[,] including
             all rights of the plaintiff to remedies against the defendant
             with respect to all or any part of the transaction, or series
             of connected transactions, out of which the action arose.

109 P.3d at 609 (brackets, ellipsis, and quotations omitted).

      The Restatement (Second) of Judgments § 18 cmt. b states that if a plaintiff

“brought an action against [a] defendant for negligently causing him personal injury,

and after a trial the jury awarded him a certain sum and judgment was given for that

sum,” claim preclusion would bar a subsequent action “to prove that the injury was

more serious than had appeared at the trial.” And § 25 cmt. c states that “even when

the injury caused by an actionable wrong extends into the future and will be felt

beyond the date of judgment, the damages awarded by the judgment are nevertheless

supposed to embody the money equivalent of the entire injury.”

      Hawg asserts these principles do not apply to its conversion claim because it is

based on a “mechanical design” rather than a tangible, “physical thing, like a car or

chainsaw.” Aplt. Br. at 18, 20. But Hawg identifies no Colorado case to support this

distinction. To the contrary, the Colorado Supreme Court has recognized the

temporal limits of conversion in a case involving an architectural design, which is

also not a tangible physical thing. See Masterson, 573 P.2d at 551.

      We agree with the district court’s ruling that claim preclusion made further

consideration of Hawg’s conversion claim futile.4

      4
       To the extent Hawg contests claim preclusion on the ground that “the
Defendants refused to produce actual revenue or profit information relating to the use of
                                           10
       b. Unjust enrichment

       The district court said Hawg wished to reopen “to seek ongoing and future

damages for [the] conversion claim against all defendants (or in the alternative, for unjust

enrichment).” Aplt. App., Vol. III at 630.5 It held that Hawg could not “pursue a claim

for unjust enrichment as an alternative to conversion.” Id. at 632. The court again relied

the sealed bearing pack and it was impossible for Hawg to argue at trial for future
damages,” Aplt. Br. at 23, it could have appealed any failure by the trial court to order
production to the CCA. See Restatement (Second) of Judgments § 18 cmt. b (“The fact
that the judgment was based on error does not pre[vent] the defendant from setting the
judgment up as a defense to an action on the original claim. If it was erroneous, the
plaintiff might have taken steps to have it set aside or reversed in the original
proceeding.”).
        To the extent Hawg invokes the exception to claim preclusion when a trial
court has expressly reserved the plaintiff’s right to maintain the second action, see
id. § 26 cmt. b, that exception requires “[a] determination by the court that its
judgment is ‘without prejudice’ (or words to that effect) to a second action on the
omitted part of the claim, expressed in the judgment itself, or in the findings of
fact, conclusions of law, opinion, or similar record,” id. Hawg cites only the trial
court’s order denying an injunction on its trade secret misappropriation claim,
which found no irreparable harm because of “the possibility that [Hawg] could
seek further damages in the future if misappropriation continues.” Aplt. App.,
Vol. I at 145-46. But nothing in the trial court’s judgment expressly reserved
Hawg’s right to pursue a second action on any claim, let alone conversion.
       5
         In its response to the Defendants’ motion to dismiss in district court, Hawg
said its “unjust enrichment claim is an alternative claim to the misappropriation of
trade secrets claim and the civil theft claim.” Aplt. App., Vol. I at 214. This is
consistent with the Restatement (Third) of Restitution and Unjust Enrichment §§ 40
and 42 (2011), which recognizes unjust enrichment is an equitable theory of relief
that may be awarded based on conversion or interference with a trade secret. See
Harris Grp., Inc. v. Robinson, 209 P.3d 1188, 1205-07 (Colo. App. 2009). When it
moved for leave to file a second amended complaint, Hawg deleted its previous
misappropriation and civil theft claims from the proposed complaint, leaving
conversion, unjust enrichment, and breach of contract. Aplt. App., Vol. II at 460-65.
Hawg does not contest on appeal the district court’s understanding that conversion
and unjust enrichment were alternative claims.
                                            11
on claim preclusion, explaining that “[i]f plaintiff believed there was a danger defendants

would continue to use its designs past the date of the jury’s verdict, there is simply no

reason why it could not have sought future damages under a primary or alternative theory

of unjust enrichment in the original suit.” Id. (citing Wilkes v. Wyo. Dep’t of Emp’t, 314

F.3d 501, 504-05 (10th Cir. 2002) (stating “a final judgment on the merits of an action

precludes the parties or their privies from relitigating issues that were or could have been

raised in the prior action”); Restatement (Second) of Judgments § 25 cmt. c).

       Hawg’s opening brief challenges the district court’s claim preclusion

conclusion about “both the conversion claim and the unjust enrichment claim,” Aplt.

Br. at 22, without distinguishing the two claims, stating anything specific about unjust

enrichment, or questioning the court’s treatment of them as alternative claims. It

offers nothing about unjust enrichment in addition to its arguments about conversion,

and we have addressed those arguments.

       For substantially the same reasons stated by the district court, we agree that

claim preclusion bars Hawg’s unjust enrichment claim. See Satsky v. Paramount

Commc’ns, Inc., 7 F.3d 1464, 1467 (10th Cir. 1993) (“Under res judicata, or claim

preclusion, a final judgment on the merits of an action precludes the parties or their

privies from relitigating issues that were or could have been raised in the prior

action.”) (emphasis added) (quotations omitted)).

       c. Breach of contract

       In the proposed second amended complaint, Hawg alleged that Mr. Ficken’s

“continued use of the Designs in connection with his employment at Newsco constitutes

                                             12
a continuing breach.” Aplt. App., Vol. II at 485. Hawg further alleged that “[t]he

amount of damages for this continued breach of contract is yet to be determined.” Id.

       The district court said claim preclusion was “fatal to plaintiff’s breach of

contract claim against Mr. Ficken.” Aplt. App., Vol. III at 632-33. It addressed two

different parts of the contract: confidentiality and use. As “to the confidentiality piece of

that agreement, it simply defies logic to suggest the breach thereof is ongoing” because

once Mr. Ficken disclosed the design to Newsco, the breach “was complete.” Id. at 633.

As for Mr. Ficken’s agreement not to use the design, “plaintiff fail[ed] to address why a

claim for future damages related to this alleged breach of contract could not have been

brought in its prior lawsuit.” Id.

       Under Colorado law, “a contract is considered to denote a single transaction for

the purpose of claim preclusion, and therefore claims for different breaches of a contract

ordinarily must be brought in the same action.” Loveland Essential Grp., LLC v.

Grommon Farms, Inc., 318 P.3d 6, 10 (Colo. App. 2012). But “[a] later claim merely

arising from the same contract as an earlier claim is not necessarily barred . . . if the

claim arose after the original judgment, and therefore could not have been litigated in

the original action.” Id. at 10-11.

       Hawg’s claim alleged the same breach that was litigated to conclusion in the

prior litigation. It seeks to divide the damages calculation between two actions, alleging

that the breach was established but only partially remedied in the first case. But claim

preclusion bars splitting such claims into separate actions. See Layton v. Constr. Co. v.

Shaw Contract Flooring Servs., Inc., 409 P.3d 602, 607 (Colo. App. 2016) (“A single

                                              13
claim embraces all remedial rights of a plaintiff against a defendant growing out of the

relevant transaction or series of connected transactions.” (brackets and quotations

omitted)); Restatement (Second) of Judgments § 25 cmt. c (stating that damages

awarded by the judgment are meant to compensate for the entire injury, “even when the

injury . . . extends into the future and will be felt beyond the date of judgment”).

       Even if Hawg could allege a new and discrete breach of contract claim against

Mr. Ficken that could not have been litigated in the first case, it did not do so in any

of its complaints in this case. In its brief, Hawg persists with its “continual breach”

theory. See Aplt. Br. at 25-27. For the foregoing reasons, that theory will not

overcome claim preclusion.

                                     *    *   *    *

       The district court properly determined that claim preclusion barred Hawg’s

claims for conversion, unjust enrichment, and breach of contract. It follows that the

court also correctly decided that proceeding with those claims would be futile.6

2. Denial of Motion to Reopen

       The district court denied Hawg’s motion to reopen because it lacked “good cause”

under D. Colo. Civ. R. 41.2 to do so considering the futility of Hawg’s claims. Futility

       6
          Hawg argues that the CCA’s decision reversing the judgment in its favor on
its trade secret misappropriation claim was a “manifest injustice” and that equity
should permit it to continue to seek damages in this case. Aplt. Br. at 27-31. Hawg
did not present this argument to the district court and did not argue plain error on
appeal, so it has waived this issue. See Richison v. Ernest Grp., Inc., 634 F.3d 1123,
1131 (10th Cir. 2011) (stating that the failure to raise an issue below waives that issue
in the absence of an appellate argument for plain error).

                                              14
was a valid basis to deny the motion. See Teamcorp, Inc., 835 F. Supp. 2d at 1086; see

also A123 Sys., 626 F.3d at 1216; Redmond, 624 F.3d at 803.

       Hawg argues the district court should not have considered futility without a

motion to dismiss. This argument fails to recognize the court’s discretion to manage its

own docket, which includes determining whether a movant has shown “good cause” to

reopen a closed case. The question is whether the court abused its discretion. If it did,

we would remand, the Defendants could file a renewed motion to dismiss, and the court

would revisit the claim preclusion issues.

       But the district court did not abuse its discretion given that (1) a motion to dismiss

had been fully briefed, albeit later denied as moot in light of the administrative closure;

(2) the motion to reopen was fully briefed, including the claim preclusion issues; (3) a

motion to amend the complaint was fully briefed and pending; (4) the plaintiff sought

leave to amend, in part, to conform to a report and recommendation issued on the

motion to dismiss; and (5) the plaintiff’s claims, as discussed above, were clearly

precluded.

                                   III. CONCLUSION

       We affirm the district court’s denial of the motion to reopen.

                                              Entered for the Court

                                              Scott M. Matheson, Jr.
                                              Circuit Judge

                                             15