Weibler v. Universal Technologies, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
JAN 30 2002
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT PATRICK FISHER
Clerk
WALTER W. WEIBLER, doing
business as W Cubed Manufacturing
& Engineering,
Plaintiff-Appellant,
v. No. 00-1374
(D.C. No. 96-S-2548)
UNIVERSAL TECHNOLOGIES, (D. Colo.)
INC.; JESSE ROGERS,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before EBEL , KELLY , and LUCERO , Circuit Judges.
Walter Weibler, doing business as W Cubed Manufacturing & Engineering
(“W Cubed”), sued Universal Technologies, Inc. (“UTI”) and its president, Jesse
Rogers, for misappropriation of trade secrets, unjust enrichment, negligent
*
The case is unanimously ordered submitted without oral argument
pursuant to Fed. R. App. P. 34(a)(2) and 10th Cir. R. 34.1(G). This order and
judgment is not binding precedent, except under the doctrines of law of the case,
res judicata, and collateral estoppel. The Court generally disfavors the citation of
orders and judgments; nevertheless, an order and judgment may be cited under the
terms and conditions of 10th Cir. R. 36.3.
misrepresentation, fraud, and promissory estoppel. The United States District
Court for the District of Colorado held a bench trial on the misappropriation of
trade secrets claims, ruled that UTI had misappropriated Weibler’s trade secrets, 1
and awarded Weibler damages in the amount of $111,180. Weibler appeals the
district court’s refusal to award attorney’s fees and its method of calculating
damages. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
I
Weibler contracted with UTI to manufacture heat exchangers, an integral
part of a plastic waste processor that UTI supplied to the United States Navy
(“Navy”) under a July 1995 contract. 2 The initial contract between UTI and the
Navy required UTI to purchase the heat exchangers from Tranter, a Georgia-based
manufacturer, whose patented titanium heat exchanger cost approximately $3,400
per unit. UTI thought that the Tranter price was too high and asked the Navy to
amend its specifications to allow for other heat exchanger suppliers. In
1
Summary judgment was granted on behalf of UTI on the unjust
enrichment claim in October 1998, and the misappropriation of trade secrets
claims against two UTI employees were dismissed with prejudice in September
1998. Appellant voluntarily dismissed his negligent misrepresentation and
promissory estoppel claims at the conclusion of the presentation of his evidence at
trial. At the same time, appellant decided to pursue his misappropriation of trade
secret claims against UTI and Rogers rather than his fraud claims, and as a result
the fraud claims were dismissed.
2
Within the plastic waste processor the heat exchanger transfers heat from
hot water, generated by the melting process, into cold sea water.
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November of 1995, the Navy agreed to permit UTI to purchase the heat
exchangers from any manufacturer that could make the product within the Navy’s
test parameters.
In its search for a qualified manufacturer, UTI located Weibler. UTI gave
Weibler the Navy specifications and a drawing UTI had created of a “reverse-
engineered” Tranter heat exchanger. 3 As they began working together, Weibler
told Rogers that Weibler’s ideas were to be kept secret. Rogers agreed and told
Weibler that UTI had no intention of building heat exchangers.
The parties initially agreed to have Weibler manufacture the entire heat
exchanger. However that agreement was later modified such that Weibler was to
build the interior component of the heat exchanger and UTI would build the
exterior component. Weibler never furnished UTI with any drawings of his
interior component or instructions as to how the exterior component was to be
manufactured.
In June 1996, a UTI employee, Quentin Horton, created shop drawings of
the heat exchanger Weibler and UTI were developing. As the development
process continued, Rogers periodically directed Horton to amend the drawings.
UTI subsequently manufactured and shipped its own heat exchangers based on
3
UTI had dismantled a Tranter heat exchanger in order to understand the
construction and method of operation of this particular type of titanium heat
exchanger.
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these shop drawings because Weibler failed to develop an interior component for
the heat exchangers able to meet the Navy’s test parameters.
Based on the record evidence, exhibits, and testimony of the parties, the
district court held that UTI had misappropriated Weibler’s trade secrets. The
district court did not award attorney’s fees because it found that UTI’s
misappropriation of Weibler’s trade secrets was not willful and malicious as
required by the Colorado Uniform Trade Secrets Act. Finally, the court
concluded that a reasonable royalty was the appropriate method for measuring
damages. The court calculated this reasonable royalty as a fair price for licensing
UTI and Rogers to make use of the trade secrets in the manner they intended at
the time of the misappropriation. This calculation awarded Weibler the cost of
the Tranter heat exchanger ($3,400 per unit), multiplied by a profit of 15 percent,
multiplied by the number of exchangers delivered to the Navy by UTI before the
date of Weibler’s October 1998 patent (218 exchangers). 4 The total damage
award was $111,180.
Weibler filed post-trial motions arguing that he was entitled to attorney’s
fees and damages based on a disgorgement of profits theory. The district court
4
Weibler applied for a patent on a heat exchanger device and the method
of making it in August 1996 . The initial patent application was rejected in
December of 1997. Weibler’s amended application was rejected in April of 1998,
after which he withdrew certain claims and amended others. He was issued a
patent on the remaining twice-amended claims in October of 1998.
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rejected Weibler’s arguments, and Weibler now appeals.
II
Appellant presents two issues for review by this Court. He first contends
that the district court erred in failing to award him attorney’s fees as authorized
by the Colorado Uniform Trade Secrets Act. Colo. Rev. Stat. § 7-74-105. He
also argues that the trial court erred in refusing to grant disgorgement of profits as
damages for appellees’ misappropriation of his trade secrets.
A
This court reviews the district court’s award of attorney’s fees for an abuse
of discretion. Griffin v. Steeltek, Inc., 261 F.3d 1026, 1028 (10th Cir. 2001). A
court abuses its discretion when it bases its decision on an erroneous conclusion
of law or when there is no rational basis in the evidence for the ruling. Mann v.
Reynolds, 46 F.3d 1055, 1062 (10th Cir. 1995). The underlying factual findings
are reviewed for clear error. Lancaster v. Indep. Sch. Dist. No. 5, 149 F.3d 1228,
1237 (10th Cir. 1998). “A finding of fact is ‘clearly erroneous’ if it is without
factual support in the record or if the appellate court, after reviewing all the
evidence, is left with a definite and firm conviction that a mistake has been
made.” Cowles v. Dow Keith Oil & Gas, Inc., 752 F.2d 508, 511 (10th Cir. 1985)
(citation omitted).
Weibler claims the district court erred in refusing to grant him attorney’s
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fees because the evidence showed that UTI’s actions were willful and malicious
as required by the Colorado Uniform Trade Secrets Act. Section 7-74-105 of this
Act states that if “willful and malicious misappropriation exists, the court may
award reasonable attorney fees to the prevailing party.”
The district court found that appellees’ misappropriation was not willful
and malicious. Finding that appellees’ misappropriation began “with innocent
acts such as UTI creating shop drawings of the heat exchangers because Weibler
would not provide the necessary drawings,” the court concluded that there was no
“element of meaningful control and deliberate action which is normally associated
with willful acts.” (Appellees’ Br., Tab B at 2.) The court also found that
appellees’ behavior was not malicious, concluding that Rogers’s statement to
Weibler at the beginning of their relationship—that UTI had no interest in making
heat exchangers—was truthful and that later developments, including Weibler’s
conduct, caused UTI to reevaluate that position. The record supports these
factual findings and we conclude that the district court’s factual findings are not
clearly erroneous.
The district court can only award attorney’s fees if it determines that the
misappropriation was willful and malicious. Colo. Rev. Stat. § 7-74-105.
Because the district court properly found that appellees’ misappropriation was not
willful and malicious, it had no grounds for awarding attorney’s fees and did not
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abuse its discretion in refusing to do so.
B
Weibler also argues that the trial court erred in refusing to grant
disgorgement of profits as damages for appellees’ misappropriation of his trade
secrets. Federal appellate courts apply the trade secrets law of the appropriate
state in assessing the trial court’s damage award. See Roton Barrier, Inc. v.
Stanley Works, 79 F.3d 1112, 1116 (Fed. Cir. 1996). In this case, we apply the
trade secrets law of Colorado. Under Colorado law, “[t]he factfinder has the sole
prerogative to assess the amount of damages, and its award will not be set aside
unless it is manifestly and clearly erroneous.” Sonoco Prods. Co. v. Johnson,
23 P.3d 1287, 1289 (Colo. Ct. App. 2001).
Under the Colorado Uniform Trade Secrets Act, the fact finder has
discretion in choosing the appropriate measure of damages:
Damages may include both the actual loss caused by
misappropriation and the unjust enrichment caused by
misappropriation that is not taken into account in computing actual
loss. In lieu of damages measured by any other methods, the
damages caused by misappropriation may be measured by imposition
of liability for a reasonable royalty for a misappropriator’s
unauthorized disclosure or use of a trade secret.
Colo. Rev. Stat. § 7-74-104.
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The district court used Exhibit 80, a document explaining UTI’s costs for
manufacturing the heat exchangers, to determine that UTI received no profits
from the manufacture of the heat exchangers. The lack of profits thus made
disgorgement of profits an inappropriate measure of damages. As the district
court stated:
The evidence presented at trial established that Defendants did not
receive any profits from the manufacture of heat exchangers.
Defendants’ Exhibit 80 sets forth the costs expended by Defendants
to manufacture the heat exchangers ultimately supplied to the Navy
in fulfillment of the contract. Application of those amounts would
result in a negative damage figure if disgorgement of profits was
used. Consequently, there is no evidence to support this measure of
damages for Plaintiff.
(Appellees’ Br., Tab A at 10.)
Weibler challenges the court’s use of Exhibit 80 arguing that it was
offered without foundation, was inadmissible hearsay, and did not adhere to the
Federal Rule of Evidence 1006 requirements for a summary of financial data.
We review the district court’s decision to admit evidence for abuse of discretion.
United States v. Samaniego, 187 F.3d 1222, 1223 (10th Cir. 1999). We will
reverse evidentiary rulings only when the party timely objected and the error has
affected a party’s substantial rights, unless the error constitutes plain error. See
Fed. R. Evid. 103(a)(1); United States v. Mendoza-Salgado , 964 F.2d 993, 1008
(10th Cir. 1992).
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The timely objection must state the specific grounds for the objection if
the specific ground was not apparent from the context. See Fed. R. Evid.
103(a)(1); Mendoza-Salgado , 964 F.2d at 1008. In this case, Weibler first
objected to testimony concerning Exhibit 80 on the grounds that it had not been
offered as an exhibit and there was “no foundation that [defendant Rogers]
knows the numbers or . . . created them.” (Appellant’s App. at 329.) After
appellees’ counsel questioned Rogers further, Weibler said simply, “I object.”
(Id. at 330.) Appellees’ counsel continued to question Rogers and then moved to
admit Exhibit 80 again. This time Weibler did not object. ( Id. at 331.)
Assuming Weibler properly preserved his foundation objection, he has not
established that the district court abused its discretion in admitting Exhibit 80.
Rogers established that he was familiar with the information in Exhibit 80 and
that it had been prepared under his supervision by UTI’s regular accounting staff.
(Appellees’ Br. at 34; Appellees’ App. at 389.) The district court had a rational
basis in the evidence for admitting Exhibit 80 and we conclude that the district
court did not abuse its discretion in doing so.
During the trial, Weibler only objected to Exhibit 80 on foundation
grounds. It was not until his post-judgment motion that Weibler argued that
Exhibit 80 was improper hearsay, the underlying records were never produced,
and Exhibit 80 was not a business record. ( Id. at 114-18.) Because Weibler
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failed to state these specific grounds for the objection at the time Exhibit 80 was
offered as evidence and they were not apparent from the context, they cannot
serve as the basis for a timely objection to the introduction of Exhibit 80 and we
will not reverse the district court’s evidentiary ruling. Finally, Weibler does not
suggest that the district court’s admission of Exhibit 80 constitutes plain error,
nor do we find there to be “plain error resulting in manifest injustice.” See
United States v. Taylor , 800 F.2d 1012, 1017 (10th Cir. 1986).
Because we find no error in the district court’s admission of Exhibit 80 we
hold that the district court’s damage award is not clearly erroneous.
Accordingly, the judgment is AFFIRMED.
ENTERED FOR THE COURT
Carlos F. Lucero
Circuit Judge
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