Free Order Setting Hearing on Motion - District Court of Colorado - Colorado

Case 1:01-cv-00413-JLK-BNB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 01-K-413 M.D. MARK, INC., Plaintiff, v. KERR-MCGEE CORPORATION and ORYX ENERGY COMPANY, Defendants. ________________________________________________________________________ ORDER FOR ORAL ARGUMENT ON DEFENDANTS'MOTIONS FOR PARTIAL SUMMARY JUDGMENT ________________________________________________________________________ KANE, J. Defendant oil and gas exploration companies bring two Motions for Partial Summary Judgment (Docs. 106 and 156) on the various claims of Plaintiff in this breach of seismic data licensing agreement/business tort action. For the following reasons, I find the Motions largely meritorious but will set them for oral argument to afford Plaintiff the opportunity to convince me otherwise. Overview. Plaintiff' claims arose out of the 1999 merger of Defendants Kerr-McGee s Corporation and Oryx Energy Company (" Oryx" and the resulting commingling of ) certain seismic data in their possession that Plaintiff' predecessor, PGI, had previously s licensed separately to each. The resulting post-merger entity was known as Kerr-McGee Oil & Gas Corporation. Plaintiff contends the result of the merger was a

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misappropriation of thousands of miles of its trade secret seismic data in contravention of Defendants'respective licensing agreements and other duties and standards of care, at substantial loss to Plaintiff. Plaintiff also contends that by retransferring that data to new entity Kerr-McGee Oil & Gas, Defendants further deprived Plaintiff of its valuable proprietary right to license that data for a fee. For its remedy, Plaintiff seeks compensatory and punitive damages for its losses sustained as well as the imposition of a constructive trust under eight different theories of relief.1 Defendants'first Motion invokes principles of corporate law and collateral estoppel to assert mergers, such as the one between Kerr-McGee and Oryx, do not constitute " transfers"or " conveyances"of property from one merging entity to the other and therefore cannot give rise to liability to another for such a " transfer." To the extent M.D. Mark' claims are premised on the alleged wrongful " s transfer"of seismic data as a result of Defendants'1999 Merger, Defendants contend they are entitled to judgment as a matter of law. In addition and relying on two similar and unsuccessful attempts by Plaintiff M.D. Mark to sue former PGI licensees in Texas, Defendants first Motion posits that M.D. Mark should be collaterally estopped from relitigating their rejected legal

Specifically, Plaintiff asserts the merger and subsequent disclosure of its seismic data to others constituted a misappropriation of its trade secrets by both Kerr-McGee and Oryx (Claims 1 & 2); breached the terms of Kerr-McGee and Oryx' pre-merger licensing agreements s with PGI and M.D. Mark (Claim 3); was the result of Kerr-McGee' tortious interference with s the pre-merger PGI-Oryx licensing agreement (Claim 4); the product of a civil conspiracy between the merging entities (Claim 5); breached fiduciary duties each owed M.D. Mark by virtue of their entrustment with the trade secrets of M.D. Mark as successor to PGI (Claim 6); was negligent (Claim 7); and constituted a breach of trust (Claim 8). 2

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theories against them here. Defendants'second Motion suggests alternate grounds for summary judgment on all of M.D. Mark' claims other than breach of contract and s tortious interference, both as falling within the prohibitions of the " economic loss" doctrine and because they lack sufficient evidentiary basis under the standards articulated in Fed. R. Civ. P. Rule 56(c) and (e) to survive summary judgment generally. I offer an additional alternative basis for partial summary judgment, and that is the preemption provision of the Colorado Uniform Trade Secrets Act (UTSA), Colo. Rev. Stat. § 7-74-108. Plaintiff characterizes the misappropriated seismic data as a trade secret and relies on that characterization not only to assert claims against Defendants under the UTSA, but also as the basis for the tort duties it claims Defendants owed M.D. Mark and then breached. This is improper. To the extent Plaintiff has a valid claim for misappropriation of trade secrets against either Defendant, such a claim would preempt each of Plaintiff' conflicting tort and restitutionary claims for relief premised on such s misappropriation, specifically including Plaintiff' claims for breach of fiduciary duty, s negligence, and breach of trust. Colo. Rev. Stat. § 7-74-108 (applied in Virtual Cloud Servs. v. CH2M Hill, Inc., 2006 WL 446077 (D. Colo. 2006)(Kane, J.)). Merits. In anticipation of oral argument, Plaintiff shall consider and be prepared to address the following: 1. UTSA Preemption. The gist of Plaintiff' Complaint against Defendants is twos fold: First, that the seismic data Plaintiff inherited after PGI' bankruptcy s
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constitute trade secrets that Defendants, through their merger, misappropriated; and second, that Defendants have made additional, unauthorized disclosures of Plaintiff' trade secrets to others, specifically the post-merger entity Kerr-McGee s Oil & Gas. Plaintiff contends Defendants'actions in acquiring and using its trade secrets violate Colorado' Uniform Trade Secrets Act, Colo. Rev. Stat. § 7-74-101 s et seq., and breached duties of care and fiduciary duties that arose by virtue of Defendants'possession of these trade secrets. If this is the case, then Plaintiff should be prepared at oral argument to explain why the USTA' preemption provision at § 7-74-1082 does not displace s its Sixth, Seventh and Eighth Claims for Relief, each of which is premised on Defendants'possession and use of Plaintiff' alleged trade secrets. s 2. The Law of Corporate Merger and Contract Interpretation. Defendants argue each of Plaintiff' claims hinges on the legally false premise that Oryx' merger s s with Kerr-McGee constituted an unlawful and unauthorized " transfer"of proprietary PGI and M.D. Mark seismic data between them and then to Kerr-

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Colo.Rev.Stat. § 7-74-108 states:

(1) Except as provided in subsection (2) of this section, this article displaces conflicting tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade secret. (2) This article does not affect: (a) Contractual remedies, whether or not based upon misappropriation of a trade secret; (b) Other civil remedies that are not based upon a misappropriation of a trade secret . . . 4

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3 McGee Oil & Gas, " entity not a party to this merger." Opp. at 1. I tend to an

agree, but must give credence, on summary judgment, to M.D. Mark' assertion, s not dispositively refuted by Defendants, that thousands of miles of unlicensed PGI/M.D. Mark seismic data is in the possession of Kerr-McGee Oil & Gas or not otherwise accounted for. The parties should give this fundamental issue and the legal issues raised in Defendants'merger motion related to it careful attention at oral argument. It will be helpful to me to have an accurate chronology of events and explanation of the various categories of seismic data M.D. Mark claims have been misappropriated. When those specific categories were misappropriated and by whom is not clear to me based on my current review of the parties'briefing. 3. The " Economic Loss"Doctrine. Defendants'assertions regarding the effect of the economic loss rule on Plaintiff' claims is not dissimilar in this case to the s preemption issue under the UTSA ­namely, that M.D. Mark cannot avoid contract-based limitations on its elements of proof or remedies by recharacterizing Defendants'actions as breaches of tort duties arising solely as a result of the parties'contractual relationship. In preparing for oral argument, Plaintiff should review my discussions of the economic loss doctrine as conceived by Colorado courts in Tuchman v. Pell Rudman Trust Co., 245 F. Supp.2d 1156 (D. Colo.

This characterization appears facile, as the " entity not a party to the merger"is simply Kerr-McGee Corp. renamed, the entity that emerged as a result of the merger. 5

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2003) and Monroe Property, LLC v. Bachelor Gulch Resort, LLC, 374 F. Supp.2d 914 (D. Colo. 2005). It appears at a minimum that Plaintiff' negligence and s breach of fiduciary duty claims fail on this alternative ground, as any specific duties of care owed by Defendants to M.D. Mark arise solely as a result of the license agreement and the parties'contractual relationship. Also, with respect to the opinion and affidavit of Plaintiff' expert Gray, I s note Defendants'complaints regarding the nature and timing of his purported opinions regarding industry standards in the use of seismic data generally, appear well founded. Even if Gray' affidavit were to survive scrutiny under Rule 59(e) s and the disclosure requirements of Rule 26(a), I find unpersuasive his opinion that licensees of seismic data owe their licensors duties of care arising separately and independently of the parties'licensing arrangement. 4. Collateral Estoppel. Defendants assertion that M.D. Mark should be estopped under the doctrine of claim preclusion from relitigating issues lost in similar litigation against other oil and gas exploration companies in Texas is problematic and my preference is to resolve the instant litigation on its own merits. Specifically, Defendants contend M.D. Mark should be collaterally estopped from relitigating issues it has twice litigated and lost in Texas. See TXO Prod. Co. v. M.D. Mark, Inc., 999 S.W.2d 137 (Tex. App. 1999) and M.D. Mark, Inc. v. Nuevo Energy Co., 988 S.W.2d 463 (Tx. App. 1999)(copies attached). M.D. Mark counters that the facts underlying this case are different from those in the Texas
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cases, where the courts did not consider whether M.D. Mark' seismic data s constituted a trade secret and where the cases were " well reasoned." Pl' Br. not s in Opposition to Defs'Mot. for Partial Summ. J. Based upon Collateral Estoppel, p. 2. The parties may address this issue at oral argument, but it is unlikely my

ruling will be based in any significant respect on it.

Accordingly, ORAL ARGUMENT on Defendants'Motions for Partial Summary Judgment (Docs. 106 and 156) is set for Thursday July 27, 2006 at 2:00 p.m., in Courtroom A-802 of the Alfred A. Arraj U.S. District Courthouse, 901 19th St., Denver, Colorado. Should either or both sides be unavailable at the scheduled date or time, they may contact chambers directly to reset it.

Dated April 14, 2006.

s/John L. Kane SENIOR U.S. DISTRICT COURT JUDGE

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