Free Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-cv-00413-JLK-BNB M.D. MARK, INC., Plaintiff, v. KERR-McGEE CORPORATION and ORYX ENERGY COMPANY, Defendants.

DEFENDANTS' RESPONSE IN OPPOSITION TO PLAINTIFF'S MOTION FOR ATTORNEYS' FEES

Defendants Kerr-McGee Corporation ("Kerr-McGee") and Oryx Energy Company ("Oryx") 1 (collectively, "Defendants") submit this Response in Opposition to Plaintiff's Motion for Attorneys' Fees, and respectfully state as follows: INTRODUCTION Plaintiff has not, and cannot, cite any law or evidence that would justify the Court departing from the American Rule and awarding Plaintiff over $825,000 in attorneys' fees. The statutory exceptions Plaintiff cites do not apply because Defendants did not willfully or maliciously misappropriate Plaintiff's trade secrets; nor did Defendants frivolously,

1

Oryx Energy Company ceased to exist on February 26, 1999, at which time it became KerrMcGee as a result of a statutory corporate merger. 1

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groundlessly, or vexatiously defend against Plaintiff's claims. 2

Furthermore, the indemnity

provision in the May 13, 1994 license agreement (the "1994 Agreement") does not permit Plaintiff to recover any attorneys' fees in this case. Finally, even if Plaintiff were entitled to recover some of its attorneys' fees, Plaintiff's "calculation" of the amount of those fees is not reasonable or accurate. Plaintiff seeks to recover fees for all legal services provided from the inception of this lawsuit--including services unrelated to the statutory and contractual exceptions on which Plaintiff's claim for attorneys' fees relies. ARGUMENT A. Plaintiff Is Not Entitled to Recover Attorneys' Fees Under the Colorado Uniform Trade Secrets Act in the Absence of Willful and Malicious Conduct. Colorado courts adhere to "the traditional American Rule that, absent statutory authority, an express contractual provision, or a court rule, the parties in a lawsuit are required to bear their own legal expenses." In re Estate of Klarner, 113 P.3d 150, 157 (Colo. 2005); Allison v. Bank One-Denver, 289 F.3d 1223, 1244 (10th Cir. 2002) (same). Nor does Colorado recognize equity as a basis for awarding attorneys' fees. See, e.g., Littlefield v. Bamberger, 32 P.3d 615, 621 (Colo. Ct. App. 2001). Plaintiff attempts to side-step Colorado's strict adherence to the

American Rule by asserting a statutory exception under the Colorado Uniform Trade Secrets Act ("CUTSA") that affords a court discretion to award attorneys' fees in circumstances in which "willful and malicious misappropriation exists." COLO. REV. STAT. ANN. § 7-74-105. In this

case, however, the record is void of any evidence of "willful and malicious misappropriation."

2

In fact, Plaintiff's discovery abuse, for which the Court imposed sanctions and awarded attorneys' fees to Defendant under Rule 37 in August of 2004, is the only conduct that can be described as frivolous, groundless, or vexatious. 2

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See id. Indeed, the Court previously refused to permit the issue of punitive damages to go to the jury based in part on the lack of willful or malicious conduct. Plaintiff introduced no evidence at trial of "willful and malicious" misappropriation as that phrase has been interpreted by the Colorado courts, the Tenth Circuit courts, or by the courts of other jurisdictions that have adopted the Uniform Trade Secrets Act ("UTSA"). Rather, Plaintiff asserts that Kerr-McGee's acquisition of the 3,100 seismic miles of "bootlegged" data must have been both "willful and malicious" because Kerr-McGee "could provide no evidence of its right to have possession of this seismic data." See Plaintiff's Motion at 2. Plaintiff also asserts that Kerr-McGee's decision not to return approximately 16,000 miles at the time of its 1999 merger with Oryx constitutes willful and malicious misappropriation warranting attorneys' fees. Id. Plaintiff's assertions fall far short of satisfying the statutory standard. The CUTSA reserves awards of attorneys' fees for the most egregious cases of misappropriation, such as occurred in In re S&D Foods, Inc., 144 B.R. 121, 159 (Bankr. D. Colo. 1992). In S&D Foods, the defendant (one of the plaintiff's competitors) had disclosed the plaintiff's trade secrets, sensitive financial information, and the fact that the plaintiff was on the "brink of bankruptcy" to various of the plaintiff's suppliers and customers and to other companies in the industry with the hope of acquiring the plaintiff's assets if and when it failed. Id. at 162-63. 3 Based on its finding that the defendant's actions were "malicious and wanton," the court ruled that the plaintiff was

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The S&D Foods court concluded that the defendant had also breached a merger agreement with the plaintiff, as well as its fiduciary duty to it, and had engaged in fraud and "extreme and outrageous conduct"--which it defined as "so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Id. at 168. 3

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entitled to exemplary damages and attorneys' fees under the CUTSA. Courts have also awarded attorneys' fees under the CUTSA where there was materially inconsistent testimony by key witnesses and evidentiary "oversight" by defense counsel. See Gates Rubber Co. v. Bando Am., Inc., 798 F. Supp. 1499, 1502 (D. Colo. 1992). However, where a misappropriation is

unaccompanied by an "`element of meaningful control and deliberate action which is normally associated with willful acts'" the Tenth Circuit has held that it is not "willful and malicious." See Weibler v. Universal Techs., Inc., 29 Fed. Appx. 551, 554 (10th Cir. 2002). Kerr-McGee's inability to prove rightful possession of 3,100 miles of seismic data dating from the early 1980s does not--and could not, as a matter of law--constitute evidence of "willful and malicious" misappropriation through "meaningful control and deliberate action." See id. Plaintiff wrongly hopes to shift the burden of proof on this issue to Kerr-McGee and attempts to transform an absence of evidence (i.e., the inability to locate a license agreement covering the 3,100 miles of seismic data that was held in a storage facility) into evidence of willful and malicious conduct. This slight of hand flies in the face of controlling law and the record evidence. Here, Plaintiff has offered no evidence that Kerr-McGee willfully or

maliciously acquired these 3,100 miles in question. The record contains no evidence of how Kerr-McGee found itself in possession of the data, much less that Kerr-McGee deliberately misused it. Lacking legal or factual support from the record, Plaintiff resorts to dictionary definitions of "willful" and "malicious" to conclude that the phrase "willful and malicious" under the CUTSA means "deliberate and intentional" and "without legal justification or excuse." See Plaintiff's Motion at 2. But Plaintiff cites no supporting case law or statute, and, as the Court

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recognized when instructing the jury, dictionaries are not reliable statements of the law. See Transcript at 13-14. At the risk of stating the obvious, Plaintiff's dictionary definitions are inconsistent with judicial consideration of the relevant terms and lack any factual context from the record. Furthermore, this Court has already recognized Plaintiff's lack of evidence of willful or malicious appropriation in its denial of Plaintiff's claims for punitive damages under the CUTSA. See Transcript at 903. As the Court stated in its Rule 50 ruling, Plaintiff "failed entirely to establish willful and wanton conduct or reckless conduct" and "recklessness or fraud" under Colorado Revised Statutes Annotated § 7-74-104(2). 4 See Transcript at 903 (emphasis added). The evidence showed that, with respect to the 16,000 miles of "merger data,"

Defendants relied in good faith on two opinions from the Texas Courts of Appeals. See id. at 663-72. The Court concluded that this reliance belied the possibility that Defendants acted willfully and wantonly or recklessly in defending itself against Plaintiff's claims. See id. at 903. With respect to the so-called "bootlegged" data, there is no evidence that Kerr-McGee ever even used this data. See id. at 959-60. Thus, it comes as no surprise that Plaintiff makes no effort to explain how, given this Court's refusal to award punitive damages--which are authorized under "circumstances of fraud, malice, or a willful and wanton disregard of the injured party's right and feelings"--Plaintiff could possibly show that the misappropriation at issue was both willful

Under Colorado law, a party seeking punitive damages in a civil action must prove its claim beyond a reasonable doubt. COLO. REV. STAT. ANN. § 13-25-127. However, in rejecting Plaintiff's claim for punitive damages, the Court concluded that Plaintiff had "failed entirely to establish willful and wanton conduct or reckless conduct." Transcript at 903 (emphasis added). Thus, the Court did not reject Plaintiff's claim because Plaintiff could not establish willful or malicious conduct beyond a reasonable doubt but because Plaintiff had failed to establish the required conduct under any standard. See id. 5

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and malicious, the standard required for recovery of attorneys' fees. See COLO. REV. STAT. ANN. §§ 7-74-104(2); 7-74-105 (emphases added); Transcript at 903. Because the standards for punitive damages and attorneys' fees under the CUTSA are so similar, courts regularly award attorneys' fees when the party seeking fees has already established its entitlement to punitive damages. Recently, in Cartel Asset Management v. Ocwen Financial Corporation, the court adopted the jury's findings of fraud, malice, or willful or wanton conduct warranting an award of punitive damages under the CUTSA for purposes of concluding that the plaintiff was entitled to attorneys' fees as well. Nos. 04-1502, 04-1517, 2007 WL 2733725, at *19 & n.16 (10th Cir. 2007). 5 Similarly, courts in other jurisdictions that have adopted the UTSA have based awards for attorneys' fees on juries' findings regarding punitive or exemplary damages. See, e.g., Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1111 n.4 (9th Cir. 2001); Mangren Research & Dev. Corp. v. Nat'l Chem. Co., 87 F.3d 937, 946 (7th Cir. 1996). Consistent with its refusal to award punitive damages as a matter of law, the Court should decline to award attorneys' fees under the CUTSA. B. Nor is Plaintiff Entitled to Attorneys' Fees under Its 1994 Non-Exclusive License Agreement with Kerr-McGee.

Plaintiff further argues that the indemnity provision in the 1994 Agreement between M.D. Mark and Kerr-McGee--which only relates to the 760 miles of seismic data licensed directly to KerrMcGee--entitles it to attorneys' fees. Plaintiff asserts that in agreeing to "indemnify and hold

Because the court awarded full attorneys' fees despite the fact that it had reduced the plaintiff's actual and punitive damages for misappropriation to $1, the Tenth Circuit directed the court to reassess on remand whether such reduced damages could support an award of attorneys' fees under Colorado rather than federal law. The Tenth Circuit did not, however, criticize the court for basing its award of attorneys' fees on the jury's punitive damages findings. See 2007 WL 2733725, at *19 & n.16. 6

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M.D. Mark harmless from and against any loss to M.D. Mark which is resulting from or relating to any breach by licensee of its obligations," Kerr-McGee agreed to cover the costs of Plaintiff's attorneys' fees. See Plaintiff's Motion at 3. But this indemnity provision does not provide Plaintiff any right to attorneys' fees as it is not an express agreement between the parties to shift such fees. "[A]bsent statutory authority, an express contractual provision, or a court rule, the parties in a lawsuit are required to bear their own legal expenses." See In re Estate of Klarner, 113 P.3d at 157 (emphasis added). Parties may agree to replace this traditional rule, but they must do so "expressly," through the use of "`a plain, unambiguous agreement.'" Allison, 289 F.3d at 1245 (citing Bunnett v. Smallwood, 793 P.2d 157, 160 (Colo. 1990)). The Colorado Supreme Court has recognized that attorneys' fees "should not be recoverable absent express contractual, statutory or rule liability. . . . In the absence of a plain, unambiguous agreement for the award of attorney fees and costs, we will not create such a remedy for the parties." Bunnett v. Smallwood, 793 P.2d at 163 (emphasis added). The Tenth Circuit, relying on Bunnett, has unequivocally stated that use of non-express language or language that is not "plain" or "unambiguous" cannot support an award of attorneys' fees. See Allison, 289 F.3d at 1245. In Allison, the Tenth Circuit upheld this Court's determination that an agreement providing for a party's recovery of all "`expenses reasonably incurred' did not encompass attorney's fees." 289 F.3d at 1245. The Tenth Circuit has also reasoned that phrases such as "`all cost, damage, and expense'" would probably not support an award of attorneys' fees under Colorado law postBunnett. Id. at 1245-46. 6

In contrast, courts have held that a provision providing that the prevailing party "`shall recover its reasonable costs and attorneys' fees'" could support an award of attorneys' fees. See Denner Enters., Inc. v. Barone, Inc., 87 P.3d 269, 273 (Colo. Ct. App. 2004); see also In re marriage of 7

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The 1994 Agreement on which Plaintiff's argument relies is silent on attorneys' fees. See Exhibit 60. The provision that Plaintiff asserts entitles it to attorneys' fees states that KerrMcGee (the Licensee) "shall indemnify and hold MDM harmless from and against any loss to MDM resulting from or relating to any breach." See Plaintiff's Motion at 3. Under the Colorado Supreme Court's holding in Bunnett and the Tenth Circuit's interpretation of Colorado law in Allison, the phrase "any loss" does not expressly entitle Plaintiff to recover attorneys' fees. See Bunnett, 793 P.2d at 163 (requiring express language); Allison, 289 F.3d at 1245-46 (same). Nor is the phrase "any loss" a "plain and unambiguous" expression that necessarily encompasses attorneys' fees. See Allison, 289 F.3d at 1245. As the Tenth Circuit concluded in Allison, if the Plaintiff "had intended to include attorney's fees as part of its recovery under the [license agreement], it should have stated so expressly." See id. (emphasis added). Thus, this Court should not rewrite the 1994 Agreement to create an extra-contractual remedy for Plaintiff's benefit. See Bunnett, 793 P.2d at 163. In any event, the 1994 Agreement covers only the 760 miles of seismic data licensed directly to Kerr-McGee. It would not support an award of attorneys' fees with respect to the breach of contract claim relating to the 16,000 miles of Orxy seismic data acquired by KerrMcGee through its merger with Oryx or the misappropriation of trade secrets claim relating to the 16,000 miles of Oryx data and the 3,100 miles of so-called "bootlegged" data. Plaintiff, however, has made no effort to calculate the amount of fees associated solely with these 760 miles. Sanchez-Vigil, 151 P.3d 621, 622-23 (Colo. Ct. App. 2006) (holding that provision that provided that "the prevailing party shall be entitled to recover from the other party his or her expenses and costs . . . including reasonable attorney fees" was plain and unambiguous).

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C.

Colorado Revised Statutes Annotated Section 13-17-103 Does Not Authorize Attorneys' Fees. Plaintiff further asserts that section 13-17-103 of the Colorado Revised Statutes

Annotated: (1) grants this Court discretion in determining the amount of an award for attorneys' fees; and (2) instructs the Court to consider "[t]he extent of any effort made after the commencement of an action to determine the validity of any action or claim before said action or claim was asserted." See Plaintiff's Motion at 3. Plaintiff argues that based on this statute the Court should consider Marilyn Davis's attempts to "recover seismic data from Kerr-McGee" prior to filing suit in "determining whether to assess attorney fees and them (sic) amount of attorney fees to be assessed." Id. However, this provision only applies to "frivolous, groundless, or vexatious actions." See COLO. REV. STAT. ANN. § 13-17-102(4). Under Colorado law, "[a] claim or defense is frivolous if the proponent can present no rational argument based on the evidence or the law to support it." Double Oak Constr., LLC v. Cornerstone Dev. Int'l, L.L.C., 97 P.3d 140, 151 (Colo. Ct. App. 2003) (emphasis added). Likewise, "[a] claim or defense is groundless if the proponent's allegations, while sufficient to survive a motion to dismiss for failure to state a claim, are not supported by any credible evidence at trial." Id. (emphasis added). "A vexatious claim" under Colorado law, "is one brought or maintained in bad faith to annoy or harass. It may include conduct that is arbitrary, abusive, stubbornly litigious, or disrespectful of truth." City of

Holyoke v. Schlachter Farms R.L.L.P., 22 P.3d 960, 963 (Colo. Ct. App. 2001) (emphasis added). Plaintiff has never asserted that Kerr-McGee's defense against Plaintiff's claims of breach of contract and misappropriation of trade secrets was "frivolous, groundless, or

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vexatious" in nature. Indeed, Kerr-McGee's defense cannot seriously be characterized as lacking rational argument and credible evidence or maintained in bad faith in order to annoy or harass Plaintiff. Thus, Plaintiff's assertion that the Court should view any attempts by Marilyn Davis to recover seismic data from Kerr-McGee as supporting an award of attorneys' fees under section 13-17-103 is inapposite to the situation before the Court and should be disregarded. D. Even if Plaintiff Were Entitled to Recover Attorneys' Fees, Its Request Is Unreasonable and Inaccurate. Colorado law requires a party seeking attorneys' fees to provide supporting documentation and "explain the basis upon which the fees are sought, the amount of fees, and the method of calculation of fees." See Yaekle v. Andrews, ___ P.3d ___, 2007 WL 609872, at *5 (Colo. Ct. App. 2007); Colo. R. of Civ. P. 121 § 1-22(2). Even if Plaintiff could demonstrate its entitlement to an award of attorneys' fees--which it cannot--Plaintiff would still be required to show that the amount requested (i.e., $825,014.55) had been paid or incurred and was reasonable and accurate. See Montgomery Ward & Co. v. Andrews, 736 P.2d 40, 48 (Colo. Ct. App. 1987). Plaintiff may not recover fees with respect to claims for which no expressly stated exception to the American Rule exists. See In re Estate of Klarner, 113 P.3d at 157; Allison, 289 F.3d at 1244. This means that if Plaintiff were entitled to attorneys' fees, Plaintiff would be limited to fees for legal services directly related to (1) any misappropriation of the "merger data" and the "bootlegged data" but not to any breach of contract related to these miles, and (2) the 760 miles of data governed by the 1994 Agreement. But Plaintiff has made no attempt to identify the fees associated with its misappropriation claims or data governed by the 1994 Agreement. Instead, Plaintiff impermissibly and without any explanation or supporting legal authority, seeks to recover all legal fees incurred from Plaintiff's initial discussion with legal counsel to the

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preparation of Plaintiff's Motion for Attorneys' Fees. See billing entries dated January 22, 2001, to October 12, 2007. 7 The billing entries provided by Plaintiff refer to, among numerous other examples, the drafting of the initial and amended complaints (which include claims other than misappropriation), the review of the applicable license agreements (relevant only to breach of contract claims), and the response to Defendants' summary judgment motions (which sought dismissal of misappropriation and non-misappropriation claims). The CUTSA provision upon which Plaintiff relies does not permit recovery of attorneys' fees for these and many other of the legal services described in the billing entries provided by Plaintiff that do not relate to Plaintiff's misappropriation claims. Likewise, any recovery of attorneys' fees under the 1994 Agreement's indemnity provision, if permitted at all (see supra), should be limited to legal services related to the 760 miles of data governed by the agreement. Again, Plaintiff makes no effort to calculate the fees associated with legal services related to this particular subset of data. CONCLUSION & PRAYER As discussed above, Plaintiff is not entitled to recover any of its attorneys' fees under Colorado law. But even if Plaintiff were so entitled, the figure of $825,014.25, which covers all legal fees Plaintiff has incurred since the inception of this lawsuit, is not reasonable given the limited applicability of the CUTSA and contract provisions upon which Plaintiff relies. This figure cannot be an accurate calculation of Plaintiff's fees given Plaintiff's complete failure to

Plaintiff purported to attach redacted billing entries as an exhibit to its Motion. No such exhibit, however, was attached and no billing entries were received by Defendants' counsel until October 12, 2007 (10 days after the Motion was filed and only after Plaintiff requested that the billing entries be sent). Moreover, it does not appear that the billing entries have ever been filed with the Court. 11

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segregate the amount of fees attributable to the legal services that it asserts (albeit erroneously) fall under the CUTSA and the indemnity provision of the 1994 Agreement. For the reasons stated above, Defendants respectfully request that Plaintiff's Motion for Attorneys' Fees be DENIED. Dated: November 1, 2007. Respectfully submitted, s/M. Antonio Gallegos____________ Scott S. Barker Gregory E. Goldberg M. Antonio Gallegos H OLLAND & H ART LLP 555 Seventeenth Street, Suite 3200 Post Office Box 8749 Denver, Colorado 80201-8749 Phone: (303) 295-8513 Fax: (303) 975-5416 [email protected] [email protected] [email protected] Marie R. Yeates Vinson & Elkins LLP 1001 Fannin Street, Suite 2500 Houston, Texas 77002-6760 Phone: 713.758.4576 Fax: 713.615.5544 [email protected] A TTORNEYS F OR D EFENDANTS

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CERTIFICATE OF SERVICE

I hereby certify that on November 1, 2007, I electronically filed the foregoing document with the Clerk of Court using CM/ECF system, which will serve, via electronic mail, the following: PELZ, BONIFAZI & INDERWISH, P.C. Harlan P. Pelz Daniele W. Bonifazi [email protected] [email protected]

s/ Randi L. Dixon

3781607_2.DOC

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