Paul Johnson Drywall Incorporated et al v. Sterling Group LP

Filing 206

ORDER - IT IS ORDERED that: 1. PJD's motion for partial summary judgment (Doc. 159 ) is denied. 2. Sterling's motion for summary judgment (Doc. 162 ) is granted in part and denied in part. 3. Sterling's motion to exclude Duffus (Doc . 163 [sealed]) is denied. 4. PJD is reminded of its obligation under the scheduling order to file and serve a Notice of Readiness for Final Pretrial Conference "within seven days after the resolution of the dispositive motions." (Doc. 76 at 8.) (See document for complete details). Signed by Judge Dominic W Lanza on 3/26/24. (SLQ)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

Paul Johnson Drywall Incorporated, et al.,
Plaintiff,

10
11

v.

12

Sterling Group LP,

13

No. CV-21-01408-PHX-DWL
ORDER

Defendants.

14
15

Plaintiff Paul Johnson Drywall Inc. (“PJD”) shared confidential information with

16

Defendant Sterling Group LP (“Sterling”), a private equity fund, pursuant to a non-

17

disclosure agreement so Sterling could evaluate whether to acquire PJD as part of a national

18

drywall roll-up acquisition strategy that PJD had proposed. However, the anticipated

19

acquisition of PJD never occurred. In this action, PJD contends that Sterling improperly

20

shared its confidential information with third parties, including a competitor called

21

Construction Applicators (“Con App”) and a consultant named Michael Callahan, and that

22

Sterling and/or the third parties misused that information in various ways. PJD further

23

contends it suffered damages as a result of the alleged misuse, including as shown by the

24

analysis of its expert, David Duffus.

25

Now pending before the Court are PJD’s motion for partial summary judgment

26

(Doc. 159), Sterling’s motion for summary judgment (Doc. 162), and Sterling’s motion to

27

exclude Duffus (Doc. 163 [sealed]). For the reasons stated below, PJD’s motion for partial

28

summary judgment is denied, Sterling’s motion for summary judgment is granted in part

1

and denied in part, and Sterling’s motion to exclude is denied without prejudice.

2

I.

3

Relevant Factual Background
In 2019 or 2020, PJD created a plan for a national drywall roll-up through

4

acquisitions of various drywall contractors, including PJD.

5

[sealed].) Through its representative SunTrust (now “Truist”), PJD marketed this plan to

6

various potential partners in private equity, including Sterling. (Id. at 155-56 [sealed].)

7

Sterling expressed interest in the plan and agreed to sign a non-disclosure agreement so it

8

could learn more. (Id. [sealed].) The parties executed this non-disclosure agreement (the

9

“NDA”) on March 30, 2020, designating certain protected information as “Confidential

10

Information.” (Doc. 56 at 32-38.) The NDA’s definition of “Confidential Information,”

11

which is critical to this case, is as follows:

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

(Doc. 166-1 at 170-76

For all purposes of this Agreement, the term “Confidential Information” shall
collectively refer to all non-public, confidential, or proprietary information
or material disclosed or provided by or on behalf of the Company to
Recipient on or after the date hereof, either orally or in writing, concerning
any aspect of the business or affairs of the Company or its “subsidiaries.”
Confidential Information also includes any notes, analyses, compilations,
studies or other material or documents prepared by Recipient which contain,
reflect or are primarily based on the Confidential Information. Any of the
Confidential Information disclosed by the Company that fits the definition of
a ‘trade secret’ under the Uniform Trade Secrets Act, it will be referred to
herein as a “Trade Secret.”
Notwithstanding the foregoing, Confidential Information shall not include
information or material that (i) is publicly available or becomes publicly
available through no action of Recipient in violation of this Agreement, (ii)
was already in Recipient’s or its Representatives’ possession or known to
Recipient or its Representatives prior to being disclosed or provided to
Recipient by or on behalf of the Company, provided, that, the source of such
information or material was not, to Recipient’s Knowledge, bound by a
contractual, legal or fiduciary obligation of confidentiality to the Company
or any other party with respect thereto, (iii) was or is obtained by Recipient
or its Representatives from a third party, provided, that, such third party was
not, to Recipient’s Knowledge, bound by a contractual, legal or fiduciary
obligation of confidentiality to the Company or any other party with respect
to such information or material, or (iv) is independently developed or derived
by the Recipient or its Representatives without reference to the Confidential
Information in violation of this Agreement. “Recipient’s Knowledge” means
both actual knowledge and the knowledge that a reasonably prudent person
would have obtained after a reasonable inquiry and investigation.
(Id. at 32.) After the NDA was executed, PJD provided information and documents to

-2-

1

Sterling, including providing access to a virtual data room. (See, e.g., Doc. 159-1 at 357.)

2

Sterling worked with various consultants in evaluating its potential acquisition of

3

PJD (the “Transaction”). (Doc. 181-1 at 192-208 [sealed].) By February 2021, Sterling

4

retained Michael Callahan as a consultant and began forwarding some PJD-related

5

information to him. (Doc. 159-1 at 361, 363.) However, Sterling did not show him or have

6

him sign PJD’s NDA. (Id. at 45, 282.) Sterling eventually asked Callahan to sign a

7

standalone non-disclosure agreement, but it was not executed until May 2021. (Doc. 162-

8

2 at 109-13.)

9

Sterling also became interested in a possible acquisition of Con App, another

10

drywall company. (Doc. 178-2 at 7.) Callahan was the first to reach out to Con App. (Doc.

11

161-2 at 13-14 [sealed].) In an email dated March 19, 2021, Callahan informed Con App

12

that Sterling was considering acquiring PJD and added that the potential acquisition was

13

supposed to be “confidential” but he “didn’t feel right” not telling Con App about it, so

14

Con App’s CEO Jeff Ratliff should “keep it under [his] hat.” (Doc. 159-2 at 23.) Callahan

15

subsequently expressed misgivings over this disclosure. (Doc. 159-1 at 281 [“[F]rankly,

16

that was a mistake on my part, but I really shouldn’t have told them at that point.”].)

17

Representatives from Sterling and Con App met in April 2021, during which meeting

18

portions of a slide deck entitled “Drywall Installation Platform” were shown. (Doc. 159-2

19

at 32, 37.) It appears the deck contained some information about PJD. (Doc. 159-1 at 42-

20

44.) However, Con App never signed PJD’s NDA. (Id. at 59.)1

21

In April 2021, Sterling and PJD executed a Letter of Intent (“LOI”) under which

22

Sterling would acquire a majority stake in PJD. (Doc. 181-1 at 154-58 [sealed].)2 Under

23

the LOI, Sterling would acquire PJD through a new platform company, Newco, that would

24

also be used to acquire other drywall companies as part of the national roll-up. (Id. at 154

25

[sealed].) PJD and Sterling also worked together on compiling a list of potential acquisition

26

1

27
28

Sterling previously stated that Con App qualified as a “Representative” under the
NDA but has since changed its mind and now views Con App only as an acquisition target.
(Doc. 161-1 at 69 [sealed].)
2
Sterling also executed a letter of intent with Con App. (Doc. 181-1 at 146-52
[sealed].)
-3-

1

targets, which included the Florida drywall company Vatos Drywall (“Vatos”). (Id. at 12,

2

33 [sealed]; Doc. 159-1 at 60-61; Doc. 159-2 at 156.)

3

In May 2021, Sterling began having second thoughts about acquiring PJD. (Doc.

4

159-1 at 46; Doc. 181-1 at 80-82 [sealed].)

5

concerning PJD’s employee benefits, which it believed PJD had attempted to conceal.

6

(Doc. 161-1 at 8, 46-47 [sealed]; Doc. 181-1 at 31-32 [sealed].) PJD contends these

7

benefits issues were “low risk” and a “pretext.” (Doc. 161 at 7 [sealed].) However, Sterling

8

remained interested in acquiring Con App—one partner wrote in a June 11, 2021 email

9

that he “was wrapping up drywall stuff (killing PJD, trying to pivot to Con App).” (Doc.

10

Sterling contends it noticed red flags

159-2 at 151.)

11

On June 11, 2021, Sterling told PJD (via Truist) that it would not go forward with

12

the Transaction. (Doc. 181-2 at 61, 96-100 [sealed].) Afterward, Cole Johnson (PJD’s

13

CEO) asked Sterling to reconsider and offered to step away from the company as part of

14

the Transaction. (Doc. 181-1 at 110-12 [sealed].) Sterling, in turn, convened a partner’s

15

meeting, which occurred at some point between June 18 and 28, 2021, where it decided to

16

reject Johnson’s offer. (Id.) On June 28, 2021, Sterling told PJD, again through Truist,

17

that it would not proceed with the Transaction. (Doc. 181-3 at 2-3 [sealed].)

18

That same day, PJD told Sterling that any effort by Sterling to “clos[e] on [Con

19

App] or any of the other targets prior to resolving the issues surrounding [Sterling and

20

PJD’s] partnership, and the utilization of PJD’s proprietary information, would be

21

untenable.” (Id. at 3 [sealed].) Sterling responded: “[W]e disagree with any assertion or

22

implication that a roll-up strategy in the drywall industry is proprietary information of PJD

23

or anyone else. . . . As a result, while we are not moving forward with you or PJD, we are

24

still considering executing on a platform investment in the drywall space. Such a platform

25

may also include a transaction involving Construction Applicators, a business that Sterling

26

independently identified and sourced through its established expert and executive

27

networks.” (Id. at 2-3 [sealed].) Sterling also noted: “As to information received by

28

Sterling from PJD . . . , we understand, and intend to honor, our obligations under the Non-

-4-

1

disclosure Agreement.” (Id. at 3 [sealed].)

2

Meanwhile, Con App, Callahan, and Sterling worked together on a possible national

3

drywall roll-up. (Doc. 159-1 at 67.) On June 20, 2021, Sterling shared with Con App a

4

target list it had developed in consultation with PJD (Doc. 159-2 at 156), but on July 1,

5

2021, Sterling provided a new “scrubbed” list that “only include[d] non-contaminated

6

information” and asked the group to “please delete all prior versions of M&A

7

lists/trackers.” (Doc. 159-3 at 2, emphasis omitted.)

8

Sterling ultimately decided not to pursue a national drywall roll-up. (Doc. 159-1 at

9

67-68.) Sterling principal Johann Friese then told Callahan either “that he would be free

10

to use information he already had to go and pursue whatever he wanted” or that “he can of

11

course use information and knowledge that he independently developed throughout his

12

career to go and do whatever he wants with it.” (Doc. 161-1 at 77 [sealed].)

13

In September 2021, Callahan began discussions with AEA Investors (“AEA”) as a

14

possible replacement for Sterling. (Doc. 161-3 at 107 [sealed].) Callahan stated at his

15

deposition that he believed he was free to use information from Sterling’s presentations “as

16

a central thesis as [he] moved forward with Con App without Sterling.” (Doc. 159-1 at

17

301-02.) As part of his work with AEA, Callahan attempted to set up a meeting with Vatos

18

to pitch it on a possible acquisition by AEA. (Doc. 161-1 at 291, 320 [sealed].)3 Vatos did

19

not take the meeting. (Doc. 161-4 at 22, 25-26 [sealed].)

20

Meanwhile, on December 21, 2021, Vatos and PJD entered into a letter of intent

21

under which PJD would acquire Vatos for $35 million. (Doc. 175-1 at 86 [sealed].)

22

However, Vatos later demanded a price increase and the deal ultimately closed on March

23

30, 2022 for $40 million. (Id. at 97 [sealed].)
…

24
25
26
27
28

3

During oral argument, both sides seemed to agree that this inquiry occurred during
the early part of 2022, not in December 2021 as stated in the tentative ruling. The Court
notes that although some documents in the record suggest the inquiry occurred in March
2022 (Doc 161-4 at 22-23 [sealed]), Callahan’s deposition testimony seems to indicate it
occurred in December 2021 (Doc. 161-1 at 291 [sealed]). At any rate, any dispute over the
specific date is not material to the summary judgment analysis.
-5-

1

II.

2
3

Procedural History
On July 13, 2021, PJD, the Johnson 2013 Irrevocable Trust, and the RCJ Irrevocable

Trust sued Sterling in Maricopa County Superior Court. (Doc. 1-11.)

4

On August 13, 2021, Sterling removed the action to this Court. (Doc. 1)

5

On September 8, 2021, PJD lodged a version of its Second Amended Complaint

6

(“SAC”). (Doc. 31.) The SAC was ultimately filed on October 26, 2021. (Doc. 56.)

7
8

On September 22, 2021, Sterling moved to dismiss the SAC under Rule 12(b)(6).
(Doc. 37.)

9

On December 13, 2021, the Court granted in part and denied in part Sterling’s

10

motion to dismiss. (Doc. 66.) Among other things, the Court dismissed the Johnson 2013

11

Irrevocable Trust and the RCJ Irrevocable Trust as plaintiffs. (Id.)

12

On July 21, 2023, PJD moved for partial summary judgment (Doc. 159) and Sterling

13

moved for summary judgment (Doc. 162) and to exclude Duffus (Doc. 163 [sealed]). After

14

substantial sealing-related litigation, all of the motions became fully briefed. (Doc. 192.)

15

On March 19, 2024, the Court circulated a tentative ruling to the parties via email.4

16

On March 20, 2024, the Court heard oral argument.5

17
18

DISCUSSION
I.

Legal Standard

19

“The court shall grant summary judgment if [a] movant shows that there is no

20

genuine dispute as to any material fact and the movant is entitled to judgment as a matter

21

of law.” Fed. R. Civ. P. 56(a). “A fact is ‘material’ only if it might affect the outcome of

22

the case, and a dispute is ‘genuine’ only if a reasonable trier of fact could resolve the issue

23
Although the Court’s usual practice is to place tentative rulings on the docket, the
Court utilized email in this case in light of the (over)abundance of sealed docket entries
and the corresponding risk that the tentative ruling might contain references to sensitive,
sealed information.
5
After oral argument, the Court issued an order noting that “the tentative ruling
contains references to certain matters that were filed under seal,” but “nothing in the
tentative ruling strikes the Court as unfit for public consumption,” and “any redaction
request must be filed by March 22, 2024.” (Doc. 203.) The parties did not file any
redaction requests. Accordingly, the Court has not redacted from this order the references
to materials that were filed under seal.
4

24
25
26
27
28

-6-

1

in the non-movant’s favor.” Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d

2

1119, 1125 (9th Cir. 2014). The court “must view the evidence in the light most favorable

3

to the nonmoving party and draw all reasonable inference in the nonmoving party’s favor.”

4

Rookaird v. BNSF Ry. Co., 908 F.3d 451, 459 (9th Cir. 2018). “Summary judgment is

5

improper where divergent ultimate inferences may reasonably be drawn from the

6

undisputed facts.” Fresno Motors, 771 F.3d at 1125 (internal quotation marks omitted).

7

A party moving for summary judgment “bears the initial responsibility of informing

8

the district court of the basis for its motion, and identifying those portions of ‘the pleadings,

9

depositions, answers to interrogatories, and admissions on file, together with the affidavits,

10

if any,’ which it believes demonstrate the absence of a genuine issue of material fact.”

11

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)). See

12

also Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000).

13

There is no issue for trial unless enough evidence favors the non-moving party.

14

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). “If the evidence is merely

15

colorable or is not significantly probative, summary judgment may be granted.” Id. at 249-

16

50 (citations omitted). At the same time, the evidence of the non-movant is “to be believed,

17

and all justifiable inferences are to be drawn in [its] favor.” Id. at 255. “[I]n ruling on a

18

motion for summary judgment, the judge must view the evidence presented through the

19

prism of the substantive evidentiary burden.” Id. at 254. Thus, “the trial judge’s summary

20

judgment inquiry as to whether a genuine issue exists will be whether the evidence

21

presented is such that a jury applying that evidentiary standard could reasonably find for

22

either the plaintiff or the defendant.” Id. at 255.

23

“[W]hen parties submit cross-motions for summary judgment, [e]ach motion must

24

be considered on its own merits,” but the Court must consider all evidence submitted in

25

support of both cross-motions when separately reviewing the merits of each motion. Fair

26

Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir.

27

2001) (internal quotation marks omitted). For “the party with the burden of persuasion at

28

trial” to succeed in obtaining summary judgment, it “must establish beyond controversy

-7-

1

every essential element” of each claim on which summary judgment is sought. S. Cal. Gas

2

Co. v. City of Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003) (internal quotation marks

3

omitted). The party without the burden of persuasion at trial is entitled to summary

4

judgment where it establishes that the party with the burden of persuasion will be unable

5

to prove at least one element of its claim in light of the undisputed facts. Celotex Corp.,

6

477 U.S. at 322-23. This distinction reflects that the burden is ultimately on the proponent

7

of each claim to prove it. Id. (“Rule 56(c) mandates the entry of summary judgment, after

8

adequate time for discovery and upon motion, against a party who fails to make a showing

9

sufficient to establish the existence of an element essential to that party’s case, and on

10

which that party will bear the burden of proof at trial. In such a situation, there can be ‘no

11

genuine issue as to any material fact,’ since a complete failure of proof concerning an

12

essential element of the nonmoving party’s case necessarily renders all other facts

13

immaterial.”).

14

Where the Court “does not grant all the relief requested by the motion, it may enter

15

an order stating any material fact—including an item of damages or other relief—that is

16

not genuinely in dispute and treating the fact as established in the case.” Fed. R. Civ. P.

17

56(g). However, where “it is readily apparent that the court cannot grant all the relief

18

requested by the motion, it may properly decide that the cost of determining whether some

19

potential fact disputes may be eliminated by summary disposition is greater than the cost

20

of resolving those disputes by other means, including trial. Even if the court believes that

21

a fact is not genuinely in dispute it may refrain from ordering that the fact be treated as

22

established.” Fed. R. Civ. P. 56(g), advisory committee’s note to 2010 amendment. See

23

also Kreg Therapeutics, Inc. v. VitalGo, Inc., 919 F.3d 405, 415 (7th Cir. 2019) (“Because

24

Rule 56(g) speaks of what a court ‘may’ do, we review for an abuse of discretion.”); NCWC

25

Inc. v. CarGuard Admin. Inc., 2022 WL 17620550, *2 (D. Ariz. 2022) (“The decision

26

whether to grant relief under Rule 56(g) is discretionary.”); 2 Steven S. Gensler & Lumen

27

N. Mulligan, Federal Rules of Civil Procedure, Rules and Commentary, Rule 56 (2023)

28

(“[T]he decision whether to enter an order establishing facts is left to the trial court’s

-8-

1

discretion. No party has a procedural entitlement to have facts established by order.”)

2

(footnote omitted).

3

II.

PJD’s Motion for Partial Summary Judgment

4

PJD asks the Court to find that the NDA is a valid contract and that Sterling breached

5

it. (Doc. 159 at 12-13.) PJD would leave the issue of damages and any other remedies for

6

trial. (Id.) Sterling does not dispute that the NDA is a valid contract (Doc. 162 at 19

7

[“While the parties may disagree as to the correct application or interpretation of the NDA

8

and LOI, the overall validity of these agreements is not in dispute.”]), so the Court turns to

9

the issue of breach.

10

A.

11

Section 2.1 of the NDA provides as follows:

12

2.1. Non-disclosure. Recipient shall keep confidential and shall not disclose to any
person or entity, any information about the Transaction or the fact that Recipient
has received the Confidential Information and is considering the Transaction and all
discussions between the Company and Recipient related thereto, except that (subject
to section 2.2 below) Recipient may make such disclosure if such disclosure must
be made in order that Recipient not commit a violation of law. Recipient shall keep
confidential and shall not disclose, to any person or entity, the Confidential
Information, except to its directors, officers, managers, equityholders, members,
partners, employees, agents, advisors, affiliates, representatives, consultants,
operating partners, insurance providers and potential financing sources (such
persons or entities who actually receive Confidential Information will collectively
be referred to herein as Recipient’s “Representatives”) for the purpose of evaluating
the Transaction and who shall be directed to comply with the terms of this
Agreement expressly applicable to them, and except as otherwise consented to in
writing by the Company. Recipient agrees not to initiate contact with any person
who, to Recipient’s Knowledge, is an employee, customer, or supplier of the
Company or its subsidiaries, specifically with respect to the Transaction, without
the Company’s prior written consent, provided, that, the foregoing restriction does
not prohibit initiating, contacting or engaging in discussions with such persons in
the ordinary course of business and does not restrict any of Recipient’s affiliates
that have not received Confidential Information. Recipient further agrees that all
inquiries, requests for information and other communications concerning the
Transaction shall be made only through RBC Capital Markets, LLC (“RBCCM”).

13
14
15
16
17
18
19
20
21
22
23
24
25
26

Section 2.1

(Doc. 56 at 32-33.)
1.

The Parties’ Arguments

27

PJD argues that “Sterling violated . . . § 2.1 . . . when: (1) Sterling gave PJD’s

28

Confidential Information to its Representatives without directing them to comply with the

-9-

1

NDA’s terms, and (2) its Representatives divulged the information to third parties.” (Doc.

2

159 at 14.) As for the first theory, PJD elaborates that Sterling breached § 2.1 by “fail[ing]

3

to instruct Callahan according to the terms of the NDA, then sen[ding] him non-public

4

information regarding PJD’s roll-up thesis, a breakdown of PJD’s margin profiles, and a

5

discussion of PJD’s procurement advantage over its competitors.” (Id.) As for the latter

6

theory, PJD elaborates that Sterling breached § 2.1 by “shar[ing] Confidential Information

7

with Con App—one of PJD’s largest potential national competitors—without the required

8

protections under the NDA.” (Id. at 15.)

9

Sterling responds that “[a]ll of [its] [R]epresentatives either signed written joinders

10

or acknowledgments (although such written direction was not required by the NDA) or had

11

their own confidentiality obligations with respect to PJD’s Confidential Information,

12

governed by separate agreements.” (Doc. 178 at 11.) Further, Sterling contends that § 2.1

13

“does not contain . . . a requirement” to “direct Callahan to comply with the NDA’s terms.”

14

(Id., internal quotation marks omitted.) According to Sterling, “Representatives need only

15

be directed to comply with the terms ‘expressly applicable to them,’” “Sterling did direct

16

Callahan to comply with the NDA,” and “Callahan expressly understood that the

17

information he received about PJD was confidential.” (Id.) Meanwhile, Sterling contends

18

that Con App “was not a Representative under the NDA,” but rather “a target company that

19

Sterling evaluated alongside PJD,” and Con App “did not actually receive Confidential

20

Information.” (Id. at 12-13, emphasis and internal quotation marks omitted.) Finally,

21

Sterling asserts that “PJD’s motion is precluded because PJD waived its rights under the

22

NDA” by “treat[ing] the information it now claims as confidential with cavalier disregard”

23

and that “PJD’s motion runs afoul of Arizona law and would chill fair competition.” (Id.

24

at 16-17.)

25

In reply, PJD argues that the record clearly shows that “Sterling breached Section[]

26

2.1 . . . of the NDA by sharing the target compilation that PJD developed with Sterling

27

using PJD’s Confidential Information with Callahan and Con App,” “by disseminating PJD

28

Confidential Information to a third-party private equity firm and using such information

- 10 -

1

with the third-party firm ‘as a central thesis’ to pursue a national drywall roll-up in

2

competition with PJD,” and “by sharing with the third-party private equity firm the target

3

compilation that PJD developed with Sterling using PJD’s Confidential Information and

4

targeting many of the same entities for which PJD provided Confidential Information.”

5

(Doc. 183 at 2-4.) PJD further asserts that “Sterling attempts to . . . manufacture a factual

6

dispute to . . . avoid summary judgment by submitting a sham declaration and rewriting the

7

discovery record.” (Id. at 4-8.) PJD also argues that it “did not waive the protections of

8

the NDA” and that “Arizona public policy supports enforcing the NDA.” (Id. at 9-10.)

9

2.

Analysis

10

PJD’s first theory of breach is that because Sterling did not specifically advise

11

Callahan of the NDA’s non-disclosure requirements and of his responsibility to comply

12

with them, Sterling was not permitted under the NDA to disclose any Confidential

13

Information to Callahan (and violated § 2.1 by doing so). The problem with this theory is

14

that it overlooks the existence of unresolved questions of contractual interpretation

15

concerning how, exactly, § 2.1’s non-disclosure obligations apply to consultants such as

16

Callahan. Although § 2.1 begins by creating a default rule that “Recipient”—which is

17

defined elsewhere in the contract as Sterling (Doc. 56 at 32)—is not allowed to disclose

18

various categories of information “to any person or entity,” § 2.1 then creates several

19

exceptions to that prohibition. One of those exceptions, relevant here, is that Sterling may

20

disclose “Confidential Information” to its “Representatives”—and both sides agree that

21

Callahan qualifies as a Representative—“for the purpose of evaluating the Transaction and

22

who shall be directed to comply with the terms of this Agreement expressly applicable to

23

them.” (Id. at 32-33, emphasis added.) PJD focuses on the first half of the italicized

24

language, “and who shall be directed to comply with the terms of this Agreement,” and

25

argues that it required Sterling to direct Callahan and its other Representatives to comply

26

with § 2.1’s non-disclosure requirements. But PJD ignores the second half of the italicized

27

language, “expressly applicable to them.” As Sterling correctly notes in its response brief,

28

that language must mean something under Arizona contract law. See, e.g., Terrell v.

- 11 -

1

Torres, 456 P.3d 13, 16 (Ariz. 2020) (“[W]e attempt to reconcile and give effect to all

2

terms of the contract to avoid any term being rendered superfluous.”).

3

In its reply, PJD does not meaningfully grapple with the surplusage issue. Although

4

PJD argues that Sterling’s proffered interpretation of § 2.1 is “nonsensical” and attempts

5

to show that its proffered interpretation of § 2.1 is consistent with “Callahan’s testimony

6

and actions” (Doc. 183 at 5-7), PJD never attempts to explain what the phrase “expressly

7

applicable to them” means or how its inclusion in § 2.1 should factor into the contractual-

8

interpretation analysis.6

9

interpretation of the “expressly applicable to them” modifier in § 2.1 is that Sterling was

10

not required to direct its Representatives to comply with all of the NDA’s terms—instead,

11

Sterling was only contractually obligated to direct its Representatives to comply with the

12

subset of the NDA’s terms that expressly apply to Representatives. In the Court’s view, it

13

is also reasonable to construe § 2.1 as a term of the NDA that is not “expressly applicable”

14

to Representatives. After all, § 2.1 defines the obligations of “Recipient”—which, again,

15

is a defined term that only means Sterling.

Moreover, in the Court’s view, at least one reasonable

16

Although the parties don’t characterize the issue this way in their moving papers,

17

the problem posed by the existence of these competing, reasonable interpretations of § 2.1

18

is that they raise an unresolved question of contractual interpretation,7 at least insofar as

19

§ 2.1 governs Sterling’s obligation to advise Representatives like Callahan of their non-

20

disclosure obligations. PJD, however, did not seem to appreciate the unresolved nature of

21

that issue when it moved for summary judgment—instead, it took as a given that its

22

interpretation of § 2.1 was correct and then attempted to show, factually, why § 2.1 (as so

23

understood) was breached. But because the interpretation issue remains unresolved, PJD’s

24

6

25
26
27
28

The Court acknowledges that PJD’s counsel offered additional arguments regarding
the meaning of this phrase during oral argument and that some of Sterling’s
counterarguments during oral argument—such as that none of the provisions of the NDA
are expressly applicable to Representatives—are not terribly compelling. Nevertheless,
even after oral argument, the Court continues to view the contractual-interpretation
question as one properly resolved after further development at trial.
7
The tentative ruling referred to this problem as an unresolved question of contractual
ambiguity. Upon reflection, that description is imprecise. Taylor v. State Farm Mut. Auto.
Ins. Co., 854 P.2d 1134, 1140-41 (Ariz. 1993).
- 12 -

1

request for summary judgment is premature—the meaning of the contractual language at

2

issue must be decided before the analysis turns to breach. See, e.g., Hamada v. Valley Nat.

3

Bank, 555 P.2d 1121, 1124 (Ariz. Ct. App. 1976) (“The intent of the parties to an

4

ambiguous contract is a question of fact which cannot properly be resolved on motion for

5

summary judgment.”); Vathana v. EverBank, 770 F.3d 1272, 1277 (9th Cir. 2014) (“If the

6

wording is ambiguous, interpreting the contract involves a factual question and summary

7

judgment is inappropriate”); Petro Star, Inc. v. BP Oil Supply Co., 584 F. App’x 709, 710

8

(9th Cir. 2014) (“Because the term ‘tariff,’ as used in the disputed oil contracts, is

9

ambiguous, and a genuine dispute as to the term’s proper interpretation exists on this

10

record, the district court erred in granting BP’s motion for summary judgment on Petro

11

Star’s breach of contract claim.”). See generally Taylor, 854 P.2d at 1144-45 (“Whether

12

contract language is reasonably susceptible to more than one interpretation so that extrinsic

13

evidence is admissible is a question of law for the court. We have concluded in the

14

preceding section that the language of the agreement, illuminated by the surrounding

15

circumstances, indicates that either of the interpretations offered was reasonable. Because

16

interpretation was needed and because the extrinsic evidence established controversy over

17

what occurred and what inferences to draw from the events, the matter was properly

18

submitted to the jury.”) (citation omitted); State v. Mabery Ranch, Co., 165 P.3d 211, 219

19

(Ariz. Ct. App. 2007) (“Where contract language is susceptible to more than one

20

interpretation, the matter should be submitted to the jury.”).

21

For similar reasons, even assuming that Sterling had a contractual obligation under

22

§ 2.1 to provide some form of direction to Callahan concerning confidentiality, the contract

23

is susceptible to competing reasonable interpretations as to how, exactly, Sterling was

24

required to comply with that obligation. Although PJD contends the only way to do so was

25

to bring the actual NDA to Callahan’s attention, Sterling’s competing interpretation of

26

§ 2.1—that it could comply by entering into a separate non-disclosure agreement with

27

Callahan (Doc. 178 at 3, 11-12)—is a reasonable one, at least in the Court’s view on this

28

record. This serves as another reason why summary judgment is unwarranted as to PJD’s

- 13 -

1

first theory of breach concerning § 2.1.8

2

PJD’s other theory of breach is that Callahan’s communications with Con App

3

breached § 2.1. PJD focuses on an email chain in which Callahan set up a call with Ratliff

4

from Con App to bring him “up to speed on what the thesis is all about.” (Doc. 159-2 at

5

23.) On March 19, 2021, Callahan told Ratliff “[t]hey are obviously trying to keep PJD

6

confidential but I didn’t feel right not sharing with you so keep it under your hat.” (Id.)

7

Callahan stated during his deposition that he “really shouldn’t have told [Con App] at that

8

point.” (Doc. 159-1 at 281-82.)

9

PJD is not entitled to summary judgment on this breach theory. As an initial matter,

10

PJD is wrong to suggest that § 2.1 could, alone, provide the basis for holding Sterling liable

11

for any disclosure violations committed by Callahan.

12

“Recipient” (i.e., Sterling) to maintain the confidentiality of certain information with the

13

exception that “Recipient” may disclose “Confidential Information” to “Representatives”

14

for the purpose of evaluating the Transaction, so long as those Representatives are

15

“directed to comply with the terms of this Agreement expressly applicable to them.” (Doc.

16

56 at 32-33.) At most, then, § 2.1 imposes two explicit obligations on Sterling: (1) to

17

refrain from disclosing Confidential Information, or other information regarding the

18

Transaction, except as authorized in § 2.1; and (2) to provide certain forms of “direct[ion]”

19

to Representatives as part of any authorized disclosure to them. In contrast, § 2.1 does not

20

say that Sterling is responsible for any subsequent disclosure violations committed by

21

Representatives.

22
23

As discussed, § 2.1 requires

The clause of the NDA that might potentially give rise to such responsibility is
§ 2.6, which provides:

24
25
26
27
28

8

During oral argument, PJD also emphasized the three-month gap between when
Sterling began providing PJD-related material to Callahan (Doc. 159-1 at 363 [February
2021]) and when Callahan signed his non-disclosure agreement with Sterling (Doc. 162-2
at 109-11 [May 2021]). PJD is not entitled to summary judgment on this breach theory
because there is evidence—in the form of Callahan’s written avowal—that Callahan
understood his confidentiality obligations as arising from the start of his work for Sterling.
(Doc. 162-2 at 113.)
- 14 -

1
2

2.6. Other Parties Bound. Recipient shall be responsible for any breaches
by its Representatives of the terms of this Agreement expressly applicable to
them.

3
4

(Id. at 33.)

5

Although this clause might, at first blush, seem to provide a pathway for imposing

6

liability against Sterling based on disclosure violations committed by Representatives, the

7

analysis is once again complicated by the presence of the modifier “expressly applicable

8

to them,” which must be given effect and not disregarded as surplusage. Terrell, 456 P.3d

9

at 16. Given the presence of that clause, it is reasonable (as Sterling argues) to construe

10

§ 2.6 as only authorizing liability against Sterling for the conduct of Representatives if that

11

conduct violates a clause of the NDA that expressly applies to Representatives. (Doc. 178

12

at 11, 16.) But as noted, § 2.1 does not expressly require Representatives to maintain the

13

confidentiality of any Confidential Information they may receive from Sterling. The Court

14

does not foreclose the possibility that the parties’ intent may have been to impose such a

15

confidentiality requirement on Representatives—it would be surprising not to include

16

one—but the text of § 2.1 says nothing to that effect. At a minimum, because there is an

17

unresolved question of contract interpretation as to whether § 2.6, in conjunction with

18

§ 2.1, renders Sterling responsible for any disclosure violations committed by

19

Representatives, PJD’s request for summary judgment on the issue of breach is premature.

20

Hamada, 555 P.2d at 1124; Vathana, 770 F.3d at 1277; Petro Star, 584 F. App’x at 710;

21

Taylor, 854 P.2d at 1144-45; Mabery Ranch, 165 P.3d at 219.

22

Alternatively, even assuming that Sterling could be held responsible for any

23

improper disclosures of Confidential Information by Callahan, a reasonable factfinder

24

could conclude—when all inferences are resolved in Sterling’s favor as the non-movant—

25

that no such improper disclosures occurred. Notwithstanding Callahan’s subjective belief

26

that the information he disclosed to Con App in his March 19, 2021 email (i.e., that Sterling

27

might acquire PJD as part of the roll-up strategy) was confidential and that his disclosure

28

was therefore inappropriate, the definition of “Confidential Information” in the NDA is

- 15 -

1

very specific and excludes any information that was known to Sterling before the execution

2

of the NDA: “[T]he term ‘Confidential Information’ shall collectively refer to all non-

3

public, confidential, or proprietary information or material disclosed or provided by or on

4

behalf of the Company to Recipient on or after the date hereof.” (Doc. 56 at 32, emphasis

5

added.)9 Unfortunately, PJD does not acknowledge the italicized language in its moving

6

papers—its breach arguments are premised on the mistaken contention that “[t]he clear and

7

unambiguous terms of the NDA broadly defined Confidential Information as ‘all non-

8

public, confidential or proprietary information.’” (Doc. 183 at 2.) But as noted with

9

respect to PJD’s first theory of breach concerning § 2.1, Arizona law requires courts to

10

“attempt to reconcile and give effect to all terms of the contract to avoid any term being

11

rendered superfluous.” Terrell, 456 P.3d at 16.

12

Given this backdrop, PJD’s involvement in the roll-up strategy would not constitute

13

Confidential Information if that information was known to Sterling before Sterling entered

14

into the NDA. And there is evidence in the record that Sterling became generally aware of

15

PJD’s roll-up strategy on February 27, 2020. (Doc. 166-1 at 156 [sealed] [Truist’s email

16

to Sterling: “Paul Johnson Drywall is a leading drywall services provider with attractive

17

growth opportunities (nice roll-up similar to what IBP and TopBuild did in insulation

18

installation).

19

opportunity.”].) However, the NDA was not executed until March 30, 2020. (Doc. 56 at

20

32-38.) Accordingly, there is evidence in the record that supports Sterling’s position that

21

“[t]he roll-up thesis is not PJD’s Confidential Information.” (Doc. 178 at 12.)

This one is straight down the fairway for you given huge roll-up

22

It is, of course, possible that Callahan disclosed more to Con App about the roll-up

23

strategy than the limited details he disclosed in his March 19, 2021 email. As PJD notes,

24
25
26
27
28

9

Other portions of the definition of Confidential Information underscore that it does
not apply to information previously known by Sterling: “Confidential Information shall not
include information or material that . . . was already in Recipient’s or its Representatives’
possession or known to Recipient or its Representatives prior to being disclosed or
provided to Recipient by or on behalf of the Company, provided, that, the source of such
information or material was not, to Recipient’s Knowledge, bound by a contractual, legal
or fiduciary obligation of confidentiality to the Company or any other party with respect
thereto.” (Doc. 56 at 32, underlining omitted.)
- 16 -

1

“Con App, through Jeff Ratliff and Tom Healy . . . corresponded regularly with Callahan”

2

after the email. (Doc. 159 at 5.) But specifics matter, and without more detail and

3

evidentiary development, PJD has not established that a disclosure of Confidential

4

Information occurred during Callahan’s course of correspondence with Con App.

5

PJD also contends an in-person meeting in April 2021 between Sterling and Con

6

App breached § 2.1 because Friese used a slide deck that relied on PJD’s “Cost Stack” and

7

“Optimized Procurement” information. But although the parties agree this slide deck was

8

used during the April 2021 meeting, Friese testified that not every slide was used (“Not

9

page by page, but we went through several slides”) and that he could not remember whether

10

the “cost stack” slide was “actually discussed” at the meeting. (Doc. 181-2 at 34-35

11

[sealed].) Likewise, Con App’s representative at the April 2021 meeting, Ratliff, could not

12

recall specifics of what was (and was not) discussed during the meeting and could not

13

specify whether the “handout” he was provided during the meeting (which he did not

14

retain) was the entire slide deck. (Doc. 166-1 at 69-71 [sealed].) Because a reasonable

15

factfinder, when construing all inferences in Sterling’s favor, could conclude that Sterling

16

did not disclose the challenged slides during the April 2021 meeting, PJD is not entitled to

17

summary judgment.10

18

B.

19

Section 2.5 of the NDA provides: “Recipient shall use the Confidential Information

20

only to evaluate, negotiate and, if applicable, consummate the Transaction in a manner

21

consistent with the terms and conditions of this Agreement.” (Doc. 56 at 33.)

22

Section 2.5

1.

The Parties’ Arguments

23

PJD argues that “Sterling violated the use restriction provision in Section 2.5 when:

24

(1) Sterling and its Representatives used PJD’s Confidential Information to evaluate and

25

pursue acquiring Con App and a national drywall roll-up strategy without PJD; and (2)

26
27
28

This conclusion makes it unnecessary to resolve Sterling’s other arguments
regarding the April 2021 meeting, some of which are premised on the Friese declaration,
or to resolve PJD’s corresponding contention that the Friese declaration should be stricken
pursuant to the sham affidavit rule.
10

- 17 -

1

Sterling’s Representatives continued independently to use PJD’s Confidential Information

2

to reach out to potential targets in pursuit of a national roll-up in competition with PJD and

3

with Sterling’s authorization.” (Doc. 159 at 15.) PJD also asserts that Sterling “continued

4

to request Confidential Information from PJD and send it to its Representatives” after it

5

“internally made the decision to abandon its pursuit of PJD and pivot to Con App in mid-

6

May” 2021—at which point it “was obligated to cease using PJD’s Confidential

7

Information entirely, because the NDA clearly provides that Confidential Information may

8

only be used for the purpose of evaluating and consummating an acquisition of PJD.” (Id.)

9

Sterling responds that it complied with § 2.5 because “it used the alleged

10

‘Confidential Information’ only to evaluate, negotiate, or consummate a transaction with

11

PJD.” (Doc. 178 at 13.) Sterling further contends that PJD cannot show “as a matter of

12

law, that Sterling was no longer evaluating or negotiating a deal with PJD” and thus had to

13

cease using the information in mid-May 2021 because “Sterling and PJD continued to

14

negotiate through the end of June.” (Id.) Sterling also questions whether much of the

15

information at issue qualifies as Confidential Information under the NDA. (Id. at 14-15.)

16

Finally, Sterling contends that it cannot be held responsible for any alleged breaches of

17

§ 2.5 by Callahan or Con App because “Section 2.6 provides that Sterling is responsible

18

for its Representatives[’] breaches of only the terms ‘expressly applicable to them’” and

19

“Section 2.5 does not mention or impose an obligation on Sterling’s Representatives.” (Id.

20

at 16.)

21

In reply, PJD argues that “[a]fter informing PJD that it was no longer going forward

22

with an acquisition, Sterling breached Section 2.5 of the NDA by using PJD’s Confidential

23

Information including PJD’s procurement advantages and unique estimating and pricing

24

methods in pursuit of a national roll-up with Con App and Callahan, acknowledging that

25

they would be competing directly with PJD.” (Doc. 183 at 3.) PJD also argues that the

26

undisputed evidence shows that “Sterling breached Section[] . . . 2.5 . . . of the NDA by

27

sharing the target compilation that PJD developed with Sterling using PJD’s Confidential

28

Information with Callahan and Con App,” “by disseminating PJD Confidential Information

- 18 -

1

to a third-party private equity firm and using such information with the third-party firm ‘as

2

a central thesis’ to pursue a national drywall roll-up in competition with PJD,” and “by

3

sharing with the third-party private equity firm the target compilation that PJD developed

4

with Sterling using PJD’s Confidential Information and targeting many of the same entities

5

for which PJD provided Confidential Information.” (Id. at 2-4.) Finally, as for Sterling’s

6

“purported justifications” of losing interest in the Transaction and independently

7

researching a roll-up strategy that would include targeting Vatos, PJD contends these

8

contentions are “self-serving” and a “red herring” contradicted by the record. (Id. at 8.)

9

2.

Analysis

10

Many of PJD’s arguments regarding § 2.5 are premised on the contention that

11

“Sterling internally made the decision to abandon its pursuit of PJD and pivot to Con App

12

in mid-May” 2021, which precluded Sterling from making any subsequent “use” of

13

Confidential Information. (Doc. 159 at 15.) PJD is not entitled to summary judgment on

14

this theory because the question of when Sterling stopped “evaluat[ing],” “negotiat[ing],”

15

and attempting to “consummate” the Transaction is the subject of a genuine factual

16

dispute—although the pieces of evidence that PJD proffers on this issue may be persuasive

17

at trial, the Court cannot overlook, under Rule 56, the contrary evidence that Sterling has

18

proffered. Sterling contends that although it became concerned about red flags that

19

appeared in due diligence in late May 2021, it did not make its initial decision to decline

20

to proceed with the Transaction until June 11, 2021. (Doc. 178 at 9.) Sterling further

21

contends that, even after communicating that initial decision to PJD, it continued

22

evaluating and negotiating the Transaction during the latter part of June 2021, when

23

considering PJD’s request to reconsider the initial decision. (Id. at 14 [“PJD ignores

24

evidence that negotiations continued through the end of June.”].) Even putting aside the

25

Friese declaration, there is evidence in the record to support Sterling’s version of the

26

timeline.

27

representative wrote: “At this time we are still planning on engaging PJD. We have entered

28

a bit of a holding pattern on some 3rd party diligence streams, but are still pushing forward

For example, in an internal email written on June 2, 2011, a Sterling

- 19 -

1

the diligence streams that we are able to while our critical diligence items are being worked

2

through.” (Doc. 181-2 at 77 [sealed].) Additionally, a Sterling representative testified that

3

the Sterling partnership group participated in “a general meeting” that occurred “sometime

4

between . . . June 18th . . . and June 28th” to discuss PJD’s proposal to salvage the

5

Transaction. (Doc. 181-1 at 111-12 [sealed].) Thus, PJD is not entitled to summary

6

judgment on its theory that any “use” of Confidential Information by Sterling after mid-

7

May 2021 was necessarily forbidden under § 2.5.

8

In a related vein, PJD is not entitled to summary judgment on its claim that “A&M’s

9

analysis and dissemination of” Confidential Information constituted a breach of § 2.5.

10

(Doc. 159 at 15-16.) The communication at issue is a June 14, 2021 email from Sterling’s

11

advisor Alvarez & Marshall (“A&M”) to Callahan attaching a slide deck dated June 14,

12

2021 that contained some PJD information. (Doc. 181-2 at 112-46 [sealed].) Even

13

assuming the information at issue might qualify as Confidential Information, a reasonable

14

factfinder could conclude that one purpose of the communication was to facilitate

15

Sterling’s evaluation of the Transaction (which, again, was a permissible use under § 2.5).

16

The A&M slide deck refers to PJD as one of two “[t]arget[s]” and states “the purpose of

17

such inquiries is solely to assist . . . Sterling . . . in gaining an understanding of the Targets.”

18

(Id. at 119 [sealed].) And as discussed above, a reasonable factfinder could conclude that,

19

from Sterling’s perspective, the Transaction remained under evaluation after June 11, 2021

20

and into the latter part of June 2021.

21

Sterling’s June 18, 2021 internal partner meeting, which involved discussion of a

22

slide deck that contained references to PJD (Doc. 161-1 at 7-28 [sealed]), presents a closer

23

call. During oral argument, PJD characterized this slide deck as its best example of misuse

24

in violation of § 2.5, and upon reflection the Court agrees that PJD’s arguments regarding

25

this slide deck are perhaps its strongest breach arguments. As PJD correctly notes, certain

26

slides within this deck suggest that Sterling was no longer evaluating an acquisition of PJD

27

and had instead pivoted to pursuing a roll-up of different drywall contractors so as to

28

compete with PJD. (See, e.g., id. at 13 [page 7 of sealed deck]; id. at 26 [page 20 of sealed

- 20 -

1

deck, explaining that “[w]hile the analysis below was performed for ConApp and PJD

2

combined, we would expect the procurement opportunity for a combination of ConApp

3

and one or several players which in total generate [an EBITDA threshold] to be within a

4

similar range”].) However, a reasonable factfinder could construe other slides within this

5

presentation as evidence that the PJD acquisition was still under consideration—for

6

example, the “Situation Update” noted the presence of red flags related to PJD but clarified

7

that “this could be structured or negotiated around.” (Id. at 8 [page 2 of deck].) Thus, even

8

though PJD has a strong argument that certain individual slides are difficult to characterize,

9

in isolation, as attempts to evaluate, negotiate, or consummate the Transaction, a

10

reasonable factfinder could conclude that one overall purpose of the slide deck was to

11

engage in this form of permissible “use” under § 2.5.11

12

PJD also identifies Sterling’s June 20, 2021 email to Con App as an example of

13

misuse under § 2.5. On the one hand, the Court agrees with PJD that no reasonable

14

factfinder could view that email as an attempt to evaluate, negotiate, or consummate the

15

Transaction. Although that email was sent before Sterling definitively renounced its

16

interest in the Transaction, and thus theoretically could have qualified as a permissible use

17

under § 2.5, the contents of the email reveal that it had nothing to do with attempting to

18

acquire PJD. On the contrary, the email explained that Sterling “wanted to share the current

19

M&A list with” Con App and that Sterling had “prioritized targets through to row 89.”

20

(Doc. 159-2 at 156.)

21

corresponding spreadsheet. (Doc. 161-3 at 37-41 [sealed].) Nevertheless, PJD is not

22

entitled to summary judgment on its claim that the June 20, 2021 email to Con App violated

23

§ 2.5 because a reasonable factfinder could conclude, when all disputed facts and

24

inferences are resolved in Sterling’s favor, that the target list did not contain Confidential

25

Information as that term is defined in the NDA. During his deposition in this case,

26

11

27
28

PJD was not one of the acquisition targets identified in the

The Court also notes that, even assuming an individual slide within the June 18,
2021 presentation could not be viewed as an attempt by Sterling to evaluate, negotiate, or
consummate the Transaction, PJD would also need to show—in order to establish breach
under § 2.5—that the slide involved the use of “Confidential Information.” PJD has not
established, on this record, the absence of a genuine dispute of fact on that issue.
- 21 -

1

Sterling’s Friese provided the following description of the genesis of the target list:

2

Any of these targets on this list you can find by doing a Google search. We’re
working with Mike Callahan who was a distributor to all these drywall
installers and he could pick up the phone, call one of his guys and get any of
these names. And the existence of—the pure existence of these names and
these targets and, you know, who owns them is public information and we
can easily replicate every single one. And for—for a fact, a majority of the
names on this list are from us. The other number of targets on this list, I
believe Cole [Johnson] came up with because we changed his M&A strategy
and he would constantly make this gesture of turning a glass of water upside
down in the sense that we changed his strategy, which then I would consider
joint work product. And then lastly, the phasing of these targets, Phase 1,
Phase 3, prioritization, is something that we, at Sterling, determined all on
our own. So I believe this list to be our work product.

3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

(Doc. 166-1 at 50 [sealed].) Friese also testified, with respect to a “company tracker” in a
different document, that he personally created the company tracker “in conjunction with
a[n] associate of [his]” via “expert interviews,” “some Google searches,” “some trade
publications . . . [that] list essentially all these players by geography,” and a contact in the
drywall industry. (Id. at 39-40 [sealed].) Given this testimony, a reasonable factfinder
could conclude that the target list Sterling sent to Con App on June 20, 2021 fell within
one or more of the NDA’s exclusions to the definition of Confidential Information. (Doc.
56 at 32 [noting that Confidential Information does not include, inter alia, information that
“is publicly available,” “was already in Recipient’s or its Representatives’ possession or
known to Recipient or its Representatives prior to being disclosed,” or “is independently
developed or derived by the Recipient or its Representatives”].)12

22
23

Finally, to the extent PJD’s breach theories regarding § 2.5 turn on communications
by Callahan and Con App (as opposed to communications by Sterling),13 summary

24
25
26
27
28

PJD places heavy emphasis on Sterling’s subsequent decision to circulate a
“scrubbed” version of the target list (Doc. 159-3 at 2), which PJD views as an implicit
admission that the original target list must have included some Confidential Information.
But how to reconcile the “scrubbed” statement with Friese’s explanation of the genesis of
the target list is a question to be resolved by the factfinder at trial, not a question that must
be resolved in PJD’s favor at summary judgment.
13
See, e.g., Doc. 159 at 16 (“Sterling violated the use restriction provision in Section
2.5 when . . . Sterling’s Representatives continued independently to use PJD’s Confidential
12

- 22 -

1

judgment is unwarranted for the additional reason that, as discussed in relation to § 2.1, the

2

text of § 2.5 doesn’t expressly prohibit impermissible uses by Representatives (it only

3

prohibits such uses by Sterling) and § 2.6 is reasonably susceptible to competing

4

interpretations as to whether Sterling is deemed responsible for alleged NDA violations

5

committed by Representatives.

6

III.

7

Sterling’s Motion for Summary Judgment
A.

8

Damages
1.

The Parties’ Arguments

9

Sterling’s primary summary judgment arguments relate to damages (or the lack

10

thereof). Accordingly, it is helpful to begin by providing an overview of PJD’s damages

11

theories. It appears that PJD has disclosed two such theories. The first broadly relates to

12

“the value of PJD’s Proprietary Information that Sterling and its Representatives

13

wrongfully misappropriated from PJD and disseminated and misused.” (Doc. 199-1 at 14

14

[Duffus report].) According to PJD’s expert Duffus, the value of that information is $45.7

15

million. (Doc. 163-2 at 15 [sealed].) Duffus also opines that the value of “a stream of cash

16

flows that could be generated from royalties paid to license the information” is $45.7

17

million. (Id. [sealed].) PJD’s second theory relates to the Vatos transaction. PJD contends

18

it sustained $5 million in damages in relation to that transaction because it should have

19

been able to purchase Vatos for $35 million but, due to the misconduct of Sterling and its

20

Representatives, the ultimate purchase price ballooned to $40 million. (Doc. 175 at 7

21

[sealed].)

22

With that backdrop in mind, Sterling argues that “summary judgment is proper

23

because . . . PJD cannot establish any injury or damage” and “[d]amages are an element

24

for each of PJD’s affirmative claims.” (Doc. 162 at 4-5.) As an initial matter, Sterling

25

argues that Duffus’s opinions should be excluded and therefore his testimony is “not

26

competent evidence of PJD’s damages.” (Id. at 5.) Sterling asserts that PJD’s only other

27
28

Information to reach out to potential targets in pursuit of a national roll-up in competition
with PJD and with Sterling’s authorization.”).
- 23 -

1

“remaining damages calculation is based on its assertion that it paid $5 million more to

2

acquire Vatos . . . because Callahan and ConApp interfered with the acquisition by

3

misusing PJD’s Confidential Information or unfairly competing,” then contends that “[t]his

4

theory fails because: a) Vatos’ identity is not ‘Confidential Information’ under the NDA;

5

b) the NDA specifically allowed for competition with PJD in the drywall space; and c) PJD

6

has no evidence to support its assertion that Callahan or ConApp (or Sterling) had any

7

effect on PJD’s efforts to purchase Vatos.” (Id. at 5-6.) Sterling further asserts that “PJD

8

has disclosed no other computation of damages aside from Mr. Duffus’s opinions and the

9

Vatos calculation” and “Rule 37 bars PJD from presenting undisclosed calculations of

10

damages.” (Id. at 8.)

11

PJD responds that “every breach of contract gives the injured party a right to

12

damages,” so “remedies and the calculation of damages are issues that should be reserved

13

for trial.” (Doc. 172 at 5, cleaned up.) PJD contends that Sterling’s argument also “ignores

14

PJD’s entitlement to equitable remedies.” (Id.) PJD also argues that Duffus’s opinion

15

satisfies Rule 702 and establishes substantial damages and that the increased purchase price

16

of Vatos is evidence of damages. (Id. at 6-7.) Also, PJD contends that “it is well settled

17

that PJD is entitled to unjust enrichment as a contract remedy requiring Sterling to disgorge

18

the benefits it and its Representatives received as a result of the breaches.” (Id. at 6.)

19

Finally, PJD asserts that “Sterling’s request for Rule 37 relief is not ripe since PJD has not

20

offered any undisclosed damages calculation that it is seeking to present at trial” and “is a

21

premature, advisory motion in limine.” (Id. at 8.)

22

In reply, Sterling argues that PJD has failed to establish proximate causation,

23

including because Duffus’s “opinion does not address damages resulting from any alleged

24

breach of the NDA,” and that there is no competent evidence of damages proximately

25

caused by Sterling regarding the Vatos acquisition. (Doc. 188 at 3-6.) Sterling further

26

asserts that “PJD cannot articulate what, if any, equitable remedies it would be entitled to

27

against Sterling” because “Sterling is not using any of PJD’s Confidential Information”

28

and PJD cannot “obtain a judgment against non-parties Callahan and ConApp.” (Id. at 5,

- 24 -

1

emphasis omitted.)

2

2.

Analysis

3

Some of Sterling’s damages-related arguments are premised on the notion that

4

Duffus’s opinions should be excluded under Rule 702. But as discussed in Part IV infra,

5

the Court has denied, without prejudice, Sterling’s motion to exclude Duffus in light of this

6

being a case that will culminate in a bench trial. B.K. by next friend Tinsley v. Faust, 2020

7

WL 2616033, *3 (D. Ariz. 2020) (“[T]he motions to exclude the experts will be denied

8

without prejudice. . . . Genuine disputes of material fact preclude a grant of summary

9

judgment in favor of either party.”).

10

Sterling also contends that, even if Duffus’s opinions are not excluded, PJD has

11

failed to establish proximate causation. (Doc. 188 at 3 [“The testimony of PJD’s damages

12

expert, even if not excluded, is not competent evidence that PJD suffered damages resulting

13

from any act or omission of Sterling.”].) This argument is unavailing. Although Sterling

14

is correct that damages and proximate causation are essential elements of PJD’s contract

15

and tort claims,14 PJD is not required, at least in relation to its trade secrets claim, to show

16

that Sterling’s alleged misconduct caused it to suffer an actual loss (as it has nevertheless

17

attempted to do in relation to Vatos). Under Arizona’s trade secrets statute, “[d]amages

18

may include both the actual loss caused by misappropriation and the unjust enrichment

19

caused by misappropriation that is not taken into account in computing actual loss. In lieu

20

of damages measured by any other methods, the damages caused by misappropriation may

21

be measured by imposition of liability for a reasonable royalty for a misappropriator’s

22

unauthorized disclosure or use of a trade secret.” A.R.S. § 44-403(A). Here, it appears

23

PJD is attempting to use Duffus’s report to calculate damages based on a reasonable-

24

14

25
26
27
28

See, e.g., Home Indem. Co. v. Bush, 513 P.2d 145, 150 (Ariz. Ct. App. 1973)
(“Generally, damages for breach of contract are those proximately caused by the breach,
or which are within the contemplation of the parties at the time they entered into the
contract.”); W.L. Gore & Assocs., Inc. v. GI Dynamics, Inc., 872 F. Supp. 2d 883, 888 (D.
Ariz. 2012) (“Damages are an essential element of [an Arizona] misappropriation of trade
secret claim, and a claim fails as a matter of law without a cognizable theory of proximately
caused damages.”) (cleaned up); Firetrace USA, LLC v. Jesclard, 800 F. Supp. 2d 1042,
1054 (D. Ariz. 2010) (“To recover on a tort or a breach of contract claim, a plaintiff must
show proximately caused damages.”).
- 25 -

1

royalty model. That is a permissible method of attempting to prove causation and damages

2

in a trade secrets case. As the Fifth Circuit has explained:

3

In an action for trade secret misappropriation, the plaintiff can recover actual
damages based on the value of what has been lost by the plaintiff or the value
of what has been gained by the defendant. . . . The value of what the
defendant has gained as a result of the misappropriation can be measured by
a number of methods. First, the plaintiff can seek damages measured by the
defendant’s actual profits resulting from the use or disclosure of the trade
secret (unjust enrichment). Second, the plaintiff can seek damages measured
by the value that a reasonably prudent investor would have paid for the trade
secret. Third, the plaintiff can seek damages measured by the costs saved by
the defendant. . . . Finally, the plaintiff can seek damages measured by a
reasonable royalty. The royalty is calculated based on what a willing buyer
and seller would settle on as the value of the trade secret.

4
5
6
7
8
9
10
11
12

Carbo Ceramics, Inc. v. Keefe, 166 F. App’x 714, 722-23 (5th Cir. 2006) (cleaned up).15

13

See also W.L. Gore & Assocs., 872 F. Supp. 2d at 888 (“The reasonable royalty theory is

14

derived from patent law, and is based not on the infringer’s profit, but on the royalty to

15

which a willing licensor and a willing licensee would have agreed at the time of the

16

misappropriation.”) (cleaned up).

17

The Ninth Circuit’s decision in Joshua David Mellberg LLC v. Will, 2021 WL

18

4480840 (9th Cir. 2021), on which Sterling relies, is not to the contrary. There, the

19

plaintiffs in a trade secrets case sought $27 million in damages under a restitution/unjust

20

enrichment theory but did not disclose their expert’s “damage calculation” until one year

21

after the close of discovery, which in turn led the district court to exclude the report under

22

Rule 37. Id. at *1. This case is obviously distinguishable, as Duffus’s royalty-calculation

23

opinions have not been excluded. Cf. W.L. Gore & Assocs., 872 F. Supp. 2d at 891 (“While

24

a reasonable jury could reject Dr. Ugone’s [reasonable royalty] report, and Gore offers

25

many reasons to view it with skepticism, a reasonable jury could also find that Dr. Ugone’s

26

methods present a reasonable method for calculating damages. Cases cited by Gore in

27
28

15

Although Carbo Ceramics is an unpublished decision that was decided before 2007,
the Fifth Circuit (unlike the Ninth Circuit) does not prohibit its citation under these
circumstances. Compare 5th Cir. R. 47.5.4 with 9th Cir. R. 36-3.
- 26 -

1

which no expert testimony was presented, or in which testimonies or reports of a damages

2

expert were excluded based on Daubert, are simply not applicable here.”) (citation

3

omitted).

4

Although the parties have not briefed the issue in much detail, PJD has adequately

5

demonstrated, at least at this stage of the case, that it should also be allowed to pursue the

6

same theory of damages in relation to its contract claims. (Doc. 172 at 6 [“[I]t is well

7

settled that PJD is entitled to unjust enrichment as a contract remedy requiring Sterling to

8

disgorge the benefits it and its Representatives received as a result of the breaches.”].)16

9

Although the NDA does not specify how damages are to be calculated in the event of a

10

breach, the general rule is that a plaintiff may seek restitution as an alternative measure of

11

damages in a contract action. See Restatement (Second) of Contracts § 373, comment a

12

(“An injured party usually seeks, through protection of either his expectation or his reliance

13

interest, to enforce the other party’s broken promise. However, he may, as an alternative,

14

seek, through protection of his restitution interest, to prevent the unjust enrichment of the

15

other party.”) (citation omitted). Such an award “may as justice requires be measured by

16

. . . the reasonable value to the other party of what he received in terms of what it would

17

have cost him to obtain it from a person in the claimant’s position.” Id. § 371(a). Sterling

18

has not argued, nor can the Court ascertain why, the reasonable-royalty method of

19

measuring damages in the trade secrets context would not be equally available in a contract

20

action where the alleged breach was the misuse of confidential information.

21

The tentative ruling stated that, in light of these conclusions, Sterling’s request for

22

an across-the-board grant of summary judgment should be denied. In an attempt to avoid

23

this outcome, Sterling raised a new damages/causation theory during oral argument that

24

was not distinctly raised (at least in the Court’s view) in its motion papers—that because

25

Duffus made no effort to individually value the various pieces of Confidential Information

26

that he has collectively valued at $45.7 million, PJD will not be able to prove an entitlement

27

16

28

This clarification is important because, as discussed in later portions of this order,
Sterling is entitled to summary judgment on PJD’s trade secrets claim for unrelated
reasons.
- 27 -

1

to damages for any disclosure or misuse violation that only involved a subset of PJD’s

2

Confidential Information.17 Even assuming this argument is not forfeited for summary

3

judgment purposes, it does not change the outcome. Sterling may very well be correct that

4

PJD will be unable to prevail at trial on its all-or-nothing $45.7 million damage theory if

5

any of the assumptions underlying Duffus’s calculation are disproved, but none of those

6

assumptions have been disproved yet.

7

Sterling also seeks a more targeted grant of summary judgment as to PJD’s claim

8

for $5 million in damages related to the Vatos transaction. Sterling’s first argument as to

9

why this claim fails is that “Vatos’ identity is not ‘Confidential Information’ under the

10

NDA.” (Doc. 162 at 5-6.) This is correct but misses the point. Although the undisputed

11

evidence shows that Callahan had independent awareness of Vatos’s identity and existence,

12

it was only after Callahan was exposed to PJD’s Confidential Information that he chose to

13

approach Vatos to attempt to acquire it. The record is undeveloped as to why, exactly,

14

Callahan made the challenged inquiry on behalf of AEA, but a reasonable factfinder could

15

conclude, in light of its timing and when all reasonable inferences are resolved in PJD’s

16

favor, that it was based at least in part on knowledge Callahan had gathered from being

17

exposed to PJD’s Confidential Information. Indeed, Callahan stated during his deposition

18

that he considered himself free to use information from Sterling’s presentations “as a

19

central thesis as [he] moved forward with Con App without Sterling” (Doc. 159-1 at 301-

20

02), which is difficult to reconcile with the provision in Callahan’s non-disclosure

21

17

22
23
24
25
26
27
28

The Court acknowledges that Sterling developed this theory in more depth in its
motion to exclude Duffus (Doc. 163 at 3-7 [sealed]), but Sterling did not distinctly raise
this theory in its summary judgment motion. The motion simply asserts that if Duffus’s
opinions are excluded, summary judgment should be granted as to the claim for $45.7
million in damages (Doc. 162 at 5), before delving into a more developed challenge to
PJD’s claim for $5 million in Vatos-related damages (id. at 5-7). Additionally, although a
later section of the motion notes that “[a] factual claim underpinning all of PJD’s claims is
that Sterling misappropriated, misused, and/or improperly disclosed all of the information
that PJD provided Sterling as part of the contemplated transaction” (id. at 13), that
argument is not raised in relation to damages or causation, but in relation to Sterling’s
request for partial summary judgment as to some of PJD’s breach theories. Finally,
although Sterling’s summary judgment reply brief contains passages (Doc. 188 at 3) that
might be construed as raising the damages/causation theory that counsel emphasized during
oral argument, “[t]he district court need not consider arguments raised for the first time in
a reply brief.” Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007).
- 28 -

1

agreement with Sterling that forbade him from “us[ing] the Confidential Information for

2

any purpose other than to evaluate a possible consulting relationship with Sterling and to

3

the extent applicable, in furtherance of such consulting relationship” (Doc. 162-2 at 109).

4

And if PJD’s Confidential Information informed Callahan’s decision to reach out to Vatos,

5

that inquiry itself—even if it did not, as both Callahan18 and Louis Rodriguez (Vatos’s co-

6

owner)19 testified, involve the disclosure of any Confidential Information to Vatos—could

7

reasonably be construed as an impermissible “use” of Confidential Information under § 2.5

8

of the NDA, given that it was not for the purpose of evaluating, negotiating, or

9

consummating a transaction with PJD. Even though, as Sterling emphasized during oral

10

argument, there is no direct evidence that Callahan used or otherwise relied on PJD’s

11

Confidential Information when deciding to make the inquiry, there is just enough

12

circumstantial and inferential evidence for PJD’s claim to survive summary judgment.

13

For related reasons, there is no merit to Sterling’s second challenge to the Vatos

14

claim, which is that “the NDA specifically allowed for competition with PJD in the drywall

15

space.” (Doc. 162 at 6.) True, § 9 of the NDA allowed for competition, but only “so long

16

as Confidential Information is not used by such person in violation of this Agreement.”

17

(Doc. 56 at 35.) Additionally, § 2.5 clarified that Sterling could not “use” Confidential

18

Information for purposes other than evaluating, negotiating, or consummating a transaction

19

with PJD. (Id. at 33.) One reasonable way to harmonize those provisions (assuming that

20

§ 2.6 deems Sterling responsible for misuse by Callahan) is that § 9’s allowance for

21

competition did not include authorizing Sterling and its Representatives to misuse

22
23
24
25
26
27
28

Doc. 161-1 at 291, 320 (Callahan’s sealed deposition testimony, explaining that the
initial inquiry consisted of saying “I’m working with private equity in order to facilitate a
possible transaction and I would just want to see if [Vatos] had any interest in it” and that
“no meeting ever took place”); Doc. 162-2 at 36 (Callahan’s unsealed deposition
testimony, explaining that “the initial response was [Vatos] would take a meeting, and then
subsequent to that [Vatos] came back and said that [it] had decided against . . . having a
meeting, at which point I sent [Vatos] a thank you letter for considering it and hopefully
we could get a chance to meet some time down the road” and confirming that he “[n]ever
talk[ed] dollars within anyone from Vatos”).
19
Doc. 162-2 at 49 (Rodriguez, testifying that Callahan “[n]ever presented an offer”
and “[n]ever actually progressed to a . . . stage where [Vatos is] discussing price”).
18

- 29 -

1

Confidential Information for the purpose of competing against PJD.

2

Sterling’s final argument is that “PJD has no evidence to support its assertion that

3

Callahan or ConApp (or Sterling) had any effect on PJD’s efforts to purchase Vatos.”

4

(Doc. at 6, emphasis omitted.) This argument presents a close call. On the one hand,

5

Rodriguez provided the following explanation for Vatos’s decision to seek the $5 million

6

price increase:

7
8
9
10

Q.

[H]ow did the $5 million [increase] get decided upon?

A.

We [Vatos founders] talked about it one day. . . . We just looked at
real numbers. This is what we pay out every month. This is what we
pay out, this, this, this, that, and this is the—the bulk of the money
that’s ours.

11
12

(Doc. 162-2 at 46.) That explanation suggests that Callahan’s inquiry had nothing to do

13

with the price increase, which was instead the product of the Vatos owners’ independent

14

decision to reevaluate the “real numbers” underlying the deal.

15

However, Rodriguez’s statements on this topic were not fully consistent. During a

16

later portion of his deposition, when discussing whether the Vatos owners brought up the

17

possibility of “other interested buyers” in an attempt to exert leverage over PJD and

18

persuade PJD to agree to the $5 million price increase, Rodriguez testified that “it’s

19

probably been stated that there’s other parties interested and hurry up before you fall off

20

the wagon.” (Id. at 47.) Rodriguez also generally acknowledged that sellers benefit from

21

having two or more potential bidders during an auction. (Id. [“Have you ever been to an

22

auction? . . . The more the merrier. . . . Would we feel better having more people on the

23

back side of it? Of course. Who wouldn’t?”].) Finally, Rodriguez identified “Callahan”

24

as the other “company interested in purchasing Vatos.” (Id. at 47-48.)

25

Under Arizona law, proximately caused harm is “that which, in a natural and

26

continuous sequence, unbroken by any efficient intervening cause, produces an injury, and

27

without which the injury would not have occurred.” Saucedo ex rel. Sinaloa v. Salvation

28

Army, 24 P.3d 1274, 1278 (Ariz. Ct. App. 2001) (quoting Robertson v. Sixpence Inns of

- 30 -

1

Am., Inc., 789 P.2d 1040, 1047 (Ariz. 1990)). The conduct that proximately caused the

2

harm “must be a substantial factor in bringing about the harm.” Standard Chartered PLC

3

v. Price Waterhouse, 945 P.2d 317, 343 (Ariz. Ct. App. 1997) (cleaned up). Here, when

4

all factual disputes and reasonable inferences are resolved in PJD’s favor, a reasonable

5

factfinder could construe Rodriguez’s testimony as evidence that Callahan’s inquiry was a

6

substantial factor in causing the $5 million price increase. Cf. Sunds Defibrator AB v.

7

Beloit Corp., 930 F.2d 564, 565-67 (7th Cir. 1991) (affirming damage award where the

8

defendant improperly used the plaintiff’s intellectual property, in violation of licensing

9

agreement between the parties that imposed use restrictions on the defendant, in an

10

unsuccessful effort to bid for a third-party contract that “touch[ed] off a bidding war” which

11

the plaintiff ultimately won by lowering its price, and noting that “[t]he proof of a

12

counterfactual (what would have happened had [the defendant] not broken the contract) is

13

often difficult, and, within reason, doubts are resolved against the wrongdoer”).20

14

B.

15

Confidential Information
1.

The Parties’ Arguments

16

Sterling next seeks summary judgment because “PJD cannot show all or even a

17

substantial portion of its information is ‘Confidential Information’ as defined by the NDA.”

18

(Doc. 162 at 8.) As discussed in more detail below, Sterling then identifies various specific

19

categories of information that should be deemed to fall outside the definition of

20

Confidential Information. (Id. at 8-13.)

21

PJD responds that it “is not required to show that ‘all or a substantial portion’ of the

22

information it provided to Sterling was Confidential Information and was misused”

23

because “it is a clear breach of the NDA if Sterling or one of its Representatives

24

disseminated or used any Confidential Information for any purpose other than the

25

acquisition of PJD.” (Doc. 172 at 10, emphasis omitted.) Regarding the specific categories

26

of information that Sterling asserts were not Confidential Information, PJD contends it

27

20

28

This conclusion makes it unnecessary to resolve Sterling’s evidentiary objections
(Doc. 188 at 11) to Cole Johnson’s deposition testimony regarding the impact of Callahan’s
inquiry on the price increase.
- 31 -

1

provided much more detailed information than Sterling suggests, and much of it was non-

2

public. (Id. at 11-13.)

3

In reply, Sterling argues that “[a] core issue with PJD’s case is that it stops reading

4

the NDA after the first paragraph of Section 1” because “the very next paragraph excludes

5

broad swaths of information from the definition of Confidential Information—e.g.,

6

previously known or independently derived information.” (Doc. 188 at 6.)

7

2.

Analysis

8

As an initial matter, although PJD is correct that any misuse of Confidential

9

Information by Sterling would breach the NDA, it does not follow that Sterling is precluded

10

from seeking summary judgment as to whether specific categories of information qualify

11

as Confidential Information. Under Rule 56(a), Sterling is entitled to seek partial summary

12

judgment, including to narrow the grounds on which PJD may argue it breached the

13

contract, even if such a motion does not eliminate PJD’s contract claims. Fed. R. Civ. P.

14

56(a); 2 Steven S. Gensler & Lumen N. Mulligan, Federal Rules of Civil Procedure, Rules

15

and Commentary, Rule 56 (2023) (“The 2010 version of Rule 56 . . . mak[es] it clear that

16

a party may seek summary judgment on a claim, a defense, or a part of a claim or defense

17

. . . [a]lthough this type of partial summary judgment will not, by itself, resolve any of the

18

claims in the case.”) (emphasis in original). And even if such a ruling were too narrow

19

under Rule 56(a), the Court would have the discretion to issue it under Rule 56(g). Fed.

20

R. Civ. P. 56(g) (“[T]he court . . . may enter an order stating any material fact—including

21

an item of damages or other relief—that is not genuinely in dispute and treating the fact as

22

established in the case.”).

23

a.

Roll-Up

24

PJD does not dispute that the ideas of a drywall roll-up or expansion through growth

25

are not Confidential Information. (Doc. 172 at 11.) Rather, PJD contends that it shared

26

detailed information about its roll-up plans with Sterling and that Sterling developed its

27

specific drywall roll-up plan using that information. (Id.)

28

This appears to be an instance of the parties talking past each other. Given the lack

- 32 -

1

of disagreement as to the narrow ruling Sterling actually seeks, the Court has no trouble

2

granting Sterling’s motion on this issue. The idea of “expansion through growth or M&A”

3

is well known. (See, e.g., Doc. 166-1 at 276 [sealed].) Additionally, the idea of creating a

4

national drywall roll-up—or even the fact that PJD was considering doing so—are not

5

Confidential Information as that term is defined in the NDA because Sterling became aware

6

of those matters before entering into the NDA.

7

b.

Identities Of Drywall Companies

8

Sterling next asserts that “identities of other drywall installers, including Vatos” are

9

not Confidential Information. (Doc. 162 at 10.) Sterling advances two theories for this

10

proposition. First, Sterling correctly asserts that the identity of a drywall installer would

11

not qualify as Confidential Information if it were publicly available. (Id. at 10-11; see Doc.

12

56 at 32 [“Confidential Information shall not include information or material that (i) is

13

publicly available . . . .”].) Second, Sterling correctly asserts that the identity of a drywall

14

installer that Sterling or its Representatives identified before entering into the NDA, or

15

identified without reference to any information provided by PJD pursuant to the NDA,

16

would not be Confidential Information. (Doc. 162 at 11; see Doc. 56 at 32 [“Confidential

17

Information shall not include information or material that . . . was already in Recipient’s

18

or its Representatives’ possession or known to Recipient or its Representatives . . . . or . . .

19

is independently developed or derived by the Recipient or its Representatives without

20

reference to the Confidential Information.”].) However, beyond asserting that “many”—

21

note Sterling does not say “all”—drywall companies were independently known to or

22

identified by Sterling, Sterling does not identify which ones (beyond Vatos) fall into these

23

categories. (Doc. 162 at 11.)

24

Sterling does direct the Court to a list of drywall companies taken from a slide deck

25

prepared by Friese. (Id. at 10-11.) Many of these companies have hyperlinks to websites

26

identifying them publicly, but it is unclear when those websites became available. And

27

some of the hyperlinks do not seem to work. (Doc. 166-1 at 236-38 [sealed].) Also, this

28

slide deck was prepared after Sterling began receiving information from PJD under the

- 33 -

1

NDA, so it does not establish that the list was compiled without reference to that

2

information. (Id. at 90, 155, 223, 263 [sealed].)

3

The Court concludes that the identity of Vatos was not Confidential Information,

4

but the record is undeveloped as to whether any other companies’ identities qualify as

5

Confidential Information. To be clear, this narrow ruling does not mean that other

6

information PJD may have provided concerning Vatos necessarily falls outside the

7

definition of Confidential Information.

8

c.

PJD Customer Information

9

Sterling next asks the Court to rule that “[g]eneral information, regarding PJD’s

10

customers, such as the slide shared at the joint meeting, is not Confidential Information

11

under the NDA.” (Doc. 162 at 11.) PJD disagrees, asserting that “Sterling’s argument

12

conveniently ignores the massive amount of detailed customer information, including

13

customer concentration, contact information, sales data, contracting terms, and turnkey

14

arrangements, that Sterling received from PJD.” (Doc. 172 at 12.)

15

Sterling’s request is far too vague. The Court cannot rule that “general information”

16

is not Confidential Information when it is unclear what such a ruling would mean or how

17

it would affect the trial. Cf. Phillips v. First Horizon Home Loan Corp., 2012 WL 3206555,

18

*4 (D. Nev. 2012) (“[T]he motion for partial summary judgment is too vague for the Court

19

to rule upon at this time.”).

20

Nor has Sterling adequately explained why the information shared at the May 7,

21

2021 joint meeting could not be considered Confidential Information. That information

22

apparently included “revenue for Paul Johnson Drywall[’s] . . . top ten customers.” (Doc.

23

166-1 at 48 [sealed]; Doc. 166-2 at 129 [sealed].) Even if the identify of those customers

24

and their association with PJD was public (Doc. 162-2 at 79-87 [PJD’s website]), PJD’s

25

internal revenue figures associated with those customers is an entirely different matter.

26

Further, although Sterling argues that PJD was present at the meeting where the slide was

27

shown and did not object (Doc. 162 at 11, 14), nothing in the NDA suggests that PJD

28

somehow forfeits its contractual rights by failing to make contemporaneous objections to

- 34 -

1

improper disclosures.

2

d.

Labor and Turnkey Information

3

Sterling contends that PJD’s use of W-2 labor and turnkey models is not

4

Confidential Information because the fact that it uses these models is publicly available.

5

(Doc. 162 at 11-12; Doc. 162-2 at 100 [citing John Wyatt, Arizona Contractors Paul

6

Johnson Drywall Bring the Heat to the Ever-Developing Southwest Market, Walls &

7

Ceilings

8

mountains-and-deserts].) PJD responds that it “provided Sterling with detailed information

9

about how it uniquely leveraged these concepts in combination with other facets of its

10

business model and systems to achieve superior financial performance to other industry

11

participants.” (Doc. 172 at 12-13.)

(Jan.

13,

2021),

https://www.wconline.com/articles/93519-among-the-

12

This appears to be another instance of the parties talking past each other. On the

13

one hand, the Court agrees with Sterling that PJD’s use of W-2 labor and turnkey models

14

is not, alone, Confidential Information. On the other hand, the Court does not foreclose

15

the possibility that PJD’s specific W-2 labor and turnkey models might qualify as

16

Confidential Information.

17

e.

Procurement

18

Sterling argues that PJD’s “procurement and supply-chain” methods do not qualify

19

as Confidential Information because the basic ideas that PJD was “large, could enter into

20

longer-term contracts with suppliers for more volume to get better pricing, and negotiate

21

directly with manufacturers” are “generally known concepts.” (Doc. 166 at 12 [sealed].)

22

Although these concepts at their most basic level may be generally known, it does

23

not follow that more detailed information regarding PJD’s specific procurement and

24

supply-chain methods falls outside the definition of Confidential Information. The parties

25

appear to disagree as to whether Sterling sought to “copy PJD’s procurement methods”

26

(Doc. 162 at 13), but that issue goes to whether Sterling misused that information, not

27

whether it could qualify as Confidential Information.

28

…

- 35 -

1
2

C.

Disclosure and Use
1.

The Parties’ Arguments

3

According to Sterling, “PJD asserts that Sterling has misappropriated, misused,

4

and/or disseminated all of PJD’s ‘Confidential Information’ in two general ways: (1)

5

disclosing that information to ConApp and Callahan; and (2) using that information for

6

purposes other than evaluating a transaction with PJD and in competition with PJD.” (Doc.

7

162 at 13.) Sterling seeks summary judgment as to both of these assertions because

8

“ConApp and Callahan received little to no information regarding PJD from Sterling or

9

any other source” and “Sterling, ConApp, and Callahan have not used all or even any of

10

PJD’s ‘Confidential Information’ for purposes other than evaluating a transaction with PJD

11

or certainly not to compete against PJD.” (Id. at 13, 16.)

12

PJD again responds that it “is not required to show that ‘all or a substantial portion’

13

of the information it provided to Sterling was Confidential Information and was misused”

14

because “it is a clear breach of the NDA if Sterling or one of its Representatives

15

disseminated or used any Confidential Information for any purpose other than the

16

acquisition of PJD.” (Doc. 172 at 10, emphasis omitted.) PJD contends that “[t]here is no

17

genuine issue of material fact that Sterling and its Representatives repeatedly used

18

Confidential Information provided under the NDA for purposes other than an acquisition

19

of PJD, thus entitling PJD to judgment on the issue of liability.” (Id., citation omitted.)

20

In reply, Sterling asserts that “PJD’s pleadings hinge on [the] claim . . . [that] all of

21

PJD’s information was misused” and that Sterling “is permitted to seek partial summary

22

judgment to narrow and focus the issues for trial, if necessary.” (Doc. 188 at 5-7.) Sterling

23

also argues that certain evidence cited by PJD is inadmissible. (Id. at 11.)

24
25

2.

Analysis
a.

Disclosure

26

As an initial matter, to the extent Sterling seeks a ruling that Con App and/or

27

Callahan did not receive “a significant amount” of PJD’s Confidential Information, this

28

request is too vague, Phillips, 2012 WL 3206555 at *4, and the Court will not issue such a

- 36 -

1

ruling because it is unclear what it would even mean.

2

However, not all of Sterling’s requests on this topic are overbroad or vague.

3

Regarding Con App, Sterling more specifically argues that the only circumstances in which

4

Con App may have received Confidential Information were “the customer slide and the

5

target list” and participation in “two meetings . . . one on April 13, 2021, in Virginia and

6

the other [being] the May 7 joint meeting in Houston.” (Doc. 166 at 14 [sealed].) Sterling

7

then directs the Court to Con App’s 30(b)(6) deposition where its corporate representative

8

(Ratliff) testified that “the handout in Houston and this Excel list that shows all the—just

9

names of drywall companies and sometimes addresses and things like that” were the “only

10

two things [he] could even think” of that “may have contained some information derived

11

from PJD” after he “searched the depths of [his] soul” for any possible “connection.” (Doc.

12

166-1 at 89 [sealed].) Sterling met its initial burden of “identifying those portions of [the

13

record] which it believes demonstrate the absence of a genuine issue of material fact,”

14

Celotex Corp., 477 U.S. at 323, so PJD was required to come forward with evidence of

15

other potential bases for liability to the extent it contends there are any, cf. Friedman v.

16

Live Nation Merch., Inc., 833 F.3d 1180, 1188 (9th Cir. 2016) (assuming movant “carried

17

its initial burden of production in its motion for partial summary judgment” and assessing

18

whether nonmovant “produce[d] evidence supporting his claim”). Because PJD did not

19

respond with evidence of other specific instances of Con App receiving Confidential

20

Information (Doc. 172 at 10), the Court agrees with Sterling that PJD’s bases at trial for

21

establishing liability on sharing Confidential Information with Con App will be limited to

22

the instances outlined above.

23

However, the Court does not agree with Sterling that no reasonable factfinder could

24

conclude those instances were improper disclosures under the NDA. The “customer slide”

25

discussed at the May 7, 2021 joint meeting could qualify as Confidential Information for

26

the reasons discussed in Part III.B.2.c above. So could the target list for the reasons

27

discussed in Part II.B.2 above. And although PJD is not entitled to summary judgment

28

with respect to the April 2021 meeting, see Part II.A.2, Sterling is not either, because key

- 37 -

1

disputed factual issues could be resolved in either side’s favor. Finally, Sterling’s argument

2

that Con App did not actually use much of this information (Doc. 162 at 13-15) does not

3

speak to whether there was an improper disclosure to Con App in violation of § 2.1,

4

particularly given Sterling’s contention that Con App was not its Representative (Doc. 178

5

at 12.)

6

As for Callahan, Sterling’s request for a ruling that it did not “provide[] Callahan

7

with ‘all’ of its Confidential Information . . . or even a significant amount of it[]” (Doc.

8

162 at 15-16) is too imprecise for the reasons discussed above. Sterling also contends that

9

“PJD has not pointed to a single piece of procurement information that Callahan learned of

10

from PJD that he did not already know” (Doc. 188 at 7), but Sterling concedes that Callahan

11

joined a due diligence call with A&M in which procurement was discussed. (Doc. 166 at

12

15 [sealed]; Doc. 166-2 at 140-42 [sealed]. See also Doc. 161-1 at 299-300 [sealed,

13

Callahan referring to “procurement” information from PJD during his deposition.].)

14

b.

Use

15

Sterling next contends that no reasonable factfinder could conclude that Sterling,

16

Callahan, and Con App misused “any, of PJD’s Confidential Information.” (Doc. 162 at

17

16-17.) As discussed, whether a “use” occurred in breach of § 2.5 of the NDA depends in

18

part on whether any Confidential Information was used for any purpose other than “to

19

evaluate, negotiate and, if applicable, consummate the Transaction.”

20

Sterling notes that it has not worked with Con App and Callahan on a drywall roll-

21

up since September 2021. (Doc. 166 at 16 [sealed].) Sterling also argues that Con App

22

has not integrated PJD’s information into its business and questions whether any harm

23

came from Callahan’s communications with AEA regarding the Transaction. (Id. at 16-17

24

[sealed].) But these observations and arguments, even if true, do not negate the possibility

25

that one or more of these parties may have, at some point, “used” Confidential Information

26

for a purpose other than to evaluate, negotiate, or consummate Sterling’s potential

27

acquisition of PJD.

28

As discussed in Part II.B.2 above, there is also a genuine dispute of fact about when

- 38 -

1

Sterling abandoned any interest in the Transaction. Thus, a reasonable factfinder could

2

conclude that Sterling’s internal slide deck presentation on June 18, 2021, which in part

3

addressed the feasibility of combinations not involving PJD (Doc. 161-1 at 26 [sealed]

4

[“While the analysis below was performed for ConApp and PJD combined, we would

5

expect the procurement opportunity for a combination of ConApp and one or several

6

players which in total generate at least [a specified threshold] in EBITDA, to be within a

7

similar range”]) was not a permissible use. Likewise, although PJD is not affirmatively

8

entitled to summary judgment with respect to the target-list email that Sterling later took

9

pains to “scrub[]” of PJD information, Sterling is also not entitled to summary judgment

10

with respect to that communication—disputed issues of fact and competing inferences

11

abound.

12

Finally, a reasonable factfinder could infer that Callahan and AEA at least on some

13

level considered information received through due diligence from PJD in subsequent

14

evaluations of whether to and how to reach out to other potential targets. After learning of

15

PJD’s acquisition of Vatos and C&S Drywall, one of AEA’s investors encouraged Callahan

16

“to reach out to the other material regional players,” noting that “from how [Callahan]

17

described PJD, [he] will be a welcome contrast.” (Doc. 161-4 at 25 [sealed].) Thus, to the

18

extent the unresolved dispute over contractual interpretation (i.e., whether Sterling may be

19

held liable for misuse by Callahan pursuant to §§ 2.5 and 2.6) is resolved in PJD’s favor,

20

this episode might provide a reasonable factfinder with another reason to rule against

21

Sterling on the “use” issue.

22
23

D.

Trade Secrets
1.

The Parties’ Arguments

24

In Count Seven of the SAC, PJD asserts a claim entitled “Misappropriation of Trade

25

Secrets—A.R.S. § 44-401 to -407.” (Doc. 56 ¶¶ 132-45.) Sterling seeks summary

26

judgment on that claim “because (1) PJD does not have trade secrets and (2) PJD has not

27

taken necessary steps to maintain its alleged trade secrets.” (Doc. 162 at 17.)

28

PJD responds that “[i]n arguing that PJD does not have any trade secrets, Sterling

- 39 -

1

simply ignores [Enter. Leasing Co. of Phoenix v. Ehmke, 3 P.3d 1064 (Ariz. Ct. App.

2

1999)], the leading Arizona case on compilations as trade secrets.” (Doc. 172 at 14.) PJD

3

also argues that “Sterling’s contention that PJD has not identified its trade secrets with

4

sufficient particularity and is required to prove that each individual component of its

5

business model and systems is a trade secret” is “without merit” because “the analysis

6

depends on whether the compilation as a whole qualifies as a trade secret.” (Id. at 15.)

7

PJD next argues that “[i]t is plainly unreasonable to construe a diligence request directed

8

to the identification of ‘material unregistered intellectual property’ as barring PJD from

9

receiving trade secret protection.” (Id. at 16.) As for the failure-to-protect argument, PJD

10

argues that it “has demonstrated that it took significant steps to protect the confidential

11

business information from which it derived its competitive advantages” and “Sterling has

12

not come close to making the showing required for the Court to grant judgment as a matter

13

of law on this issue.” (Id.) Finally, PJD argues that “[l]imited disclosure for economic

14

benefit or as part of a potentially profitable business transaction does not destroy secrecy.”

15

(Id. at 17.)

16

In reply, Sterling argues that “PJD cites no evidence that contradicts the evidence

17

cited in Sterling’s Motion that PJD admitted in real-time during diligence that the drywall

18

business has no trade secrets. Instead, PJD merely argues, without evidence, that the

19

request did not require PJD to identify its trade secrets, which is just not true.” (Doc. 188

20

at 9, citation omitted.) Sterling rejects the argument that some Confidential Information

21

may be a compilation trade secret because “[o]nly a small subset of PJD’s alleged

22

compilation trade secret was even arguably provided by Sterling to Callahan or ConApp”

23

and “[t]hat subset of information was not . . . trade secret information.” (Id., emphasis

24

omitted.) Sterling also argues “PJD has not provided sufficient evidence to support the

25

existence of a compilation trade secret” or “efforts taken to preserve secrecy.” (Id. at 10.)

26

2.

Analysis

27

PJD is correct that Arizona’s Uniform Trade Secrets Act provides an “expansive”

28

definition of trade secrets. Ehmke, 3 P.3d at 1069. PJD is also correct that “a trade secret

- 40 -

1

may include a grouping in which the components are in the public domain but there has

2

been accomplished an effective, successful and valuable integration of those public

3

elements such that the owner derives a competitive advantage from it,” and thus “a

4

compilation of general concepts may amount to a trade secret” if “the end-product qualifies

5

as a trade secret.” Id. However, these principles do not displace PJD’s duty to specifically

6

identify, as part of the litigation process in this case, what it contends is a trade secret.

7

“When a party fails to identify its trade secrets with particularity, summary judgment is

8

appropriate.” W.L. Gore & Assocs., 872 F. Supp. 2d at 889. See also Smartcomm License

9

Servs., LLC v. Palmieri, 2018 WL 326510, *8 (Ariz. Ct. App. 2018) (affirming grant of

10

summary judgment where “Smartcomm refused to identify with sufficient particularity

11

which documents, among the thousands in the repository, it considered trade secrets”);

12

Tucson Embedded Sys. Inc. v. Turbine Powered Tech. LLC, 2016 WL 1408347, *8 (D.

13

Ariz. 2016) (“Based upon the evidence put forth by Turbine, it would appear that it has

14

invested significant time and resources to develop the T-53 for oil and gas industry

15

applications; however, Turbine has failed to provide enough detail about the alleged trade

16

secrets for TES or this Court to adequately discern what might be legally protectable.

17

Because the Court finds that Turbine has not met its burden to prove a legally protectable

18

trade secret exists, partial summary judgment in favor of TES is appropriate.”) (footnote

19

omitted); cf. Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1166-67 (9th Cir. 1998)

20

(affirming summary judgment ruling that “Imax failed to carry its burden of identifying for

21

the court exactly what dimensions and tolerances it claimed as trade secrets”).

22

PJD contends Count Seven should survive summary judgment because it has

23

defined the allegedly misappropriated trade secrets with sufficient particularity in “Doc.

24

161-1, Ex. 9 at 5:22–11:15.” (Doc. 172 at 15.) The cross-referenced document is PJD’s

25

response to an interrogatory that required it to “[i]dentify with reasonable particularity any

26

and all trade secrets and/or ‘Protected Information’ that You claim were or are being

27

misappropriated or misused by Sterling, Mike Callahan, Construction Applicators, and/or

28

any other third party that forms the basis of your claims against Sterling.” (Doc. 161-1 at

- 41 -

1

328 [sealed].) In response, PJD began by providing a lengthy identification of the

2

information it believes qualifies as “Confidential Information” under the NDA:

3
4
5
6
7
8
9
10
11
12
13
14

PJD claims that Sterling misappropriated and/or misused the Confidential
Information that PJD provided to Sterling under the NDA, including but not
limited to PJD’s Virtual Data Room (“VDR”), Sterling’s written and oral
diligence and related requests, and Sterling’s consultants’ and related third
parties’ written and oral diligence and related requests. The Confidential
Information that PJD provided to Sterling included but was not limited to
non-public business, financial, technical, economic, and engineering
information in the form of historic and projected profits and profitability,
pricing, estimating factors and procedures, standardization factors and
requirements; drywall service and installation techniques and requirements;
lists and information about actionable target companies and target markets,
business plans, company and industry forecasts; marketing plans; maps;
blueprints and designs; negative know-how; formulas; computer data and
algorithms; databases, spreadsheets, compilations and computer programs;
methods, techniques and processes that derive independent economic value
from not being generally known to, and not being readily ascertainable by
proper means by, other persons who can obtain economic value from its
disclosure or use.

15
16
17
18
19
20
21
22
23
24
25
26
27
28

(Id. at 330 [sealed].) However, when it came time for PJD to specify which (if any) of that
Confidential Information also qualifies as a trade secret, PJD declined to do so:
While all of PJD’s procurement and supply-chain, labor, operations,
customer, financial, roll-up thesis, and acquisition target information is
Confidential Information under the NDA, some of this information is also
protected under the Arizona Uniform Trade Secrets Act, A.R.S. §44-401 to
-407 (“AUTSA”). . . . But to the extent that Interrogatory No. 8 seeks to have
PJD distinguish between information that may be protected under AUTSA
and information that may not be protected under the statute, PJD asserts that
it need not do so, and, in any event, such a request is premature at best. In
addition, Arizona common law separately provides protections for the
misappropriation and/or misuse of proprietary or otherwise confidential
information that does not fall within the statutory definition of a trade secret,
and PJD has asserted those common law claims under Counts 4 and 9 of its
Second Amended Complaint as well.
(Id. at 334-35, citations omitted [sealed].)
Regardless of whether it was “premature” for Sterling to ask PJD to identify the

- 42 -

1

trade secrets underlying Count Seven in response to an interrogatory served before the

2

close of discovery, it was PJD’s burden to provide that information in response to Sterling’s

3

summary judgment motion. Celotex Corp., 477 U.S. at 322-23. PJD’s cross-reference to

4

a document in which it refused to do so is insufficient to meet that burden. Summary

5

judgment is therefore proper on Count Seven. See, e.g., W.L. Gore & Assocs., 872 F. Supp.

6

2d at 889; Smartcomm License Servs., 2018 WL 326510 at *8; Tucson Embedded Sys.,

7

2016 WL 1408347 at *8; Imax Corp., 152 F.3d at 1166-67.

8

E.

9

Unjust Enrichment
1.

The Parties’ Arguments

10

In Count Four of the SAC, PJD asserts a claim for unjust enrichment. (Doc. 56

11

¶¶ 117-22.) Sterling seeks summary judgment on that claim “because valid contracts (the

12

NDA and LOI) apply” and thus “the doctrine of unjust enrichment has no application.”

13

(Doc. 162 at 19.)

14

PJD responds that “[a]t this stage, PJD may recover damages on its breach of

15

contract claim based upon the unjust enrichment to Sterling and its Representatives in

16

addition to pursuing an independent unjust enrichment claim against Sterling.” (Doc. 172

17

at 13.) PJD contends it “has not received the benefit of the protections of the NDA, so

18

unjust enrichment remains an alternative, stand-alone cause of action.” (Id., citation

19

omitted.)

20

In reply, Sterling reiterates that “the core of PJD’s suit is an alleged breach of the

21

parties’ NDA” and “an unjust enrichment claim fails when there is a specific contract which

22

governs the relationship of the parties.” (Doc. 188 at 9, internal quotation marks omitted.)

23

Sterling further argues that “PJD’s authorities from the motion-to-dismiss stage are

24

distinguishable.” (Id.)

25

2.

Analysis

26

Under Arizona law, an unjust enrichment claim has “five elements: (1) an

27

enrichment, (2) an impoverishment, (3) a connection between the enrichment and

28

impoverishment, (4) the absence of justification for the enrichment and impoverishment,

- 43 -

1

and (5) the absence of a remedy provided by law.” Freeman v. Sorchych, 245 P.3d 927,

2

936 (Ariz. Ct. App. 2011). “[I]f there is a specific contract which governs the relationship

3

of the parties, the doctrine of unjust enrichment has no application.” Trustmark Ins. Co. v.

4

Bank One, Ariz., 48 P.3d 485, 491-93 (Ariz. Ct. App. 2002) (cleaned up). However, where

5

the validity of a relevant contract is disputed and the plaintiff has not yet received the

6

benefit of the bargain, a plaintiff may plead an unjust enrichment claim in the alternative

7

pending a ruling on the contract’s validity. Fed. R. Civ. P. 8(d)(3) (“A party may state as

8

many separate claims or defenses as it has, regardless of consistency.”).

9

Physics, Materials & Applied Mathematics Rsch. LLC v. Yeak, 2021 WL 2557398

10

(D. Ariz. 2021), is instructive. There, the defendant was a researcher employed by the

11

plaintiff, a company that developed high-tech laser-based tools. Id. at *1. After the

12

defendant secretly started a new competing company, the plaintiff brought several claims,

13

including a claim for breach of the non-complete clause in the defendant’s employment

14

contract and a claim for unjust enrichment. Id. at *2. The court dismissed the latter claim

15

because there was a contractual relationship between the parties, the plaintiff showed that

16

it had an adequate remedy provided by law (by bringing breach of contract claims), and

17

although the defendant disputed the applicability of “a single clause of the contract,” he

18

did not dispute the overall validity of the contract. Id. at *9.

19

So, too, here. PJD and Sterling have a contractual relationship, PJD has an adequate

20

remedy provided by law (because it is asserting contract claims and may seek

21

restitutionary/unjust enrichment damages as an alternative measure of contract damages),

22

and Sterling agrees the NDA is a valid contract. (Doc. 162 at 19.)

23

In an attempt to avoid this outcome, PJD cites an order in which this Court allowed

24

an unjust enrichment claim to survive a motion to dismiss. (Doc. 172 at 13.) There, the

25

Court noted that an unjust enrichment claim may, under certain circumstances, survive a

26

motion to dismiss as an alternative to a contract claim covering the same subject matter. D

27

Stadtler Tr. 2015 Tr. v. Gorrie, 2023 WL 2503642, *47 (D. Ariz. 2023). However, the

28

Court also cited cases recognizing that such an alternative theory would not survive if the

- 44 -

1

contract at issue were later deemed valid, as the contract claim would then displace the

2

unjust enrichment claim that covered the same subject matter. See, e.g., Isofoton, S.A. v.

3

Giremberk, 2006 WL 1516026, *5 (D. Ariz. 2006) (“It is clear that if Isofoton is found on

4

summary judgment or at trial to have acted under a valid Commission Agreement, Plaintiff

5

could not recover under an unjust enrichment theory. However, Isofoton is merely seeking

6

one recovery through two alternate claims. . . . The breach of contract and unjust

7

enrichment claims are separate and inconsistent, as contemplated by [Rule 8].

8

withstands a motion to dismiss.”). That is the situation here, so Sterling is entitled to

9

summary judgment on Count Four.

10

F.

11

[I]t

Punitive and Exemplary Damages
1.

The Parties’ Arguments

12

Sterling seeks summary judgment on “PJD’s claims for exemplary damages on its

13

trade secrets claim and punitive damages on its unfair competition claim” because PJD

14

cannot establish the necessary mental-state elements. (Doc. 162 at 19-20.)

15

PJD responds that “to succeed on its Motion, Sterling has the burden to show that

16

there is a complete failure of proof such that no reasonable jury could find the requisite evil

17

mind by clear and convincing evidence.” (Doc. 172 at 8, cleaned up.) PJD asserts that

18

“evidence at trial will show that Sterling knowingly, selfishly, repeatedly, and brazenly

19

disregarded and breached its obligations under the NDA.” (Id. at 9.) Finally, PJD contends

20

that “Sterling continues to ignore the clear use restrictions contained in the NDA and the

21

fact that any misuse of any of PJD’s Confidential Information by Sterling or its

22

Representatives constituted a breach of the NDA for which Sterling is fully responsible.”

23

(Id.)

24

In reply, Sterling argues that “PJD fails to point to anything in the record supporting

25

its bald assertion that Sterling behaved with the requisite ‘evil mind’ or ‘malice’ warranting

26

exemplary damages” and fails to contradict Sterling’s evidence that it did not act with

27

malice or evil intent. (Doc. 188 at 7-8.)

28

…

- 45 -

1

2.

Analysis

2

Because the Court has now granted summary judgment to Sterling on PJD’s trade

3

secrets claim in Count Seven of the SAC, the only remaining claim that might give rise to

4

an award of punitive damages is PJD’s unfair competition claim in Count Nine of the SAC.

5

(Doc. 56 ¶¶ 154-58.)

6

Sterling’s request for summary judgment as to that punitive damage claim is denied.

7

“The question of whether punitive damages are justified should be left to the jury if there

8

is any reasonable evidence which will support them. The evidence, however, must be more

9

than slight and inconclusive such as to border on conjecture.” Farr v. Transamerica

10

Occidental Life Ins. Co. of California, 699 P.2d 376, 384 (Ariz. Ct. App. 1984). See also

11

Rawlings v. Apodaca, 726 P.2d 565, 578 (Ariz. 1986) (“We restrict [the availability of

12

punitive damages] to those cases in which the defendant’s wrongful conduct was guided

13

by evil motives. Thus, to obtain punitive damages, plaintiff must prove that defendant’s

14

evil hand was guided by an evil mind. The evil mind which will justify the imposition of

15

punitive damages may be manifested in either of two ways. It may be found where

16

defendant intended to injure the plaintiff. It may also be found where, although not

17

intending to cause injury, defendant consciously pursued a course of conduct knowing that

18

it created a substantial risk of significant harm to others.”). Even where a “single piece of

19

evidence, taken alone, might not be clear and convincing evidence of an ‘evil mind,’

20

several such pieces of evidence, taken together, might clear the evidentiary hurdle.”

21

Thompson v. Better-Bilt Aluminum Prod. Co., Inc., 832 P.2d 203, 211 (Ariz. 1992).

22

Here, PJD’s theory is that Sterling decided in May 2021 not to pursue the

23

Transaction but continued requesting Confidential Information from PJD afterward in an

24

attempt to facilitate a drywall roll-up involving PJD’s competitors. Drawing all inferences

25

and viewing all evidence in the light most favorable to PJD, that is one reasonable

26

conclusion a factfinder might reach.

27

factfinder might then reasonably conclude that Sterling, in misusing PJD’s information to

28

potentially acquire PJD’s potential competitors, “acted to serve [its] own interests, having

If a factfinder reached such a conclusion, the

- 46 -

1

reason to know and consciously disregarding a substantial risk that [its] conduct might

2

significantly injure the rights of others.” Bradshaw v. State Farm Mut. Auto. Ins. Co., 758

3

P.2d 1313, 1324 (Ariz. 1988).21

4

IV.

Duffus

5

A.

6

“The party offering expert testimony has the burden of establishing its

7

admissibility.” Bldg. Indus. Ass’n of Washington v. Washington State Bldg. Code Council,

8

683 F.3d 1144, 1154 (9th Cir. 2012). Rule 702 of the Federal Rules of Evidence governs

9

the admissibility of expert testimony. It provides:

10

Legal Standard

A witness who is qualified as an expert by knowledge, skill, experience, training, or
education may testify in the form of an opinion or otherwise if . . .

11
12

(a) the expert’s scientific, technical, or other specialized knowledge will help the
trier of fact to understand the evidence or to determine a fact in issue;

13
14

(b) the testimony is based on sufficient facts or data;

15

(c) the testimony is the product of reliable principles and methods; and

16
17

(d) the expert’s opinion reflects a reliable application of the principles and methods
to the facts of the case.

18

As for the threshold requirement that an expert witness be qualified “by knowledge,

19

skill, experience, training, or education,” “Rule 702 ‘contemplates a broad conception of

20

expert qualifications.’” Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1015

21

(9th Cir. 2004) (citation and emphasis omitted). Years of relevant experience can establish

22

the necessary “minimal foundation.” Id. at 1015-16 (finding that twenty-five years of

23

working as an independent consultant and an expert witness in the insurance industry

24

satisfied the “minimal foundation” necessary to provide expert testimony) (emphasis

25

omitted). “Disputes as to the strength of an expert’s credentials . . . go to the weight, not

26
27
28

21

During oral argument, Sterling argued that it is also entitled to summary judgment
on punitive damages because PJD cannot establish the predicate actual damages. Because
the Court has declined to enter summary judgment on actual damages, this argument fails.
In any case, the Court views this argument as forfeited for summary judgment purposes
because Sterling did not raise it in its motion.
- 47 -

1

the admissibility, of his testimony.” Kennedy v. Collagen Corp., 161 F.3d 1226, 1231 (9th

2

Cir. 1998) (cleaned up).

3

A district court’s decision to admit or exclude expert testimony is guided by a two-

4

part test that focuses on the opinion’s relevance and reliability. Daubert v. Merrell Dow

5

Pharms., Inc., 509 U.S. 579, 589 (1993). “The inquiry envisioned by Rule 702 is . . . a

6

flexible one.” Id. at 594. “The focus, of course, must be solely on principles and

7

methodology, not on the conclusions that they generate.” Id. at 595.

8

Evidence is relevant if it “has ‘any tendency to make the existence of any fact that

9

is of consequence to the determination of the action more probable or less probable than it

10

would be without the evidence.’” Id. at 587 (quoting Fed. R. Evid. 401). “The Rule’s basic

11

standard of relevance thus is a liberal one.” Id.

12

The basic standard of reliability is similarly broad. “Shaky but admissible evidence

13

is to be attacked by cross examination, contrary evidence, and attention to the burden of

14

proof, not exclusion.” Primiano v. Cook, 598 F.3d 558, 564 (9th Cir. 2010). “Basically,

15

the judge is supposed to screen the jury from unreliable nonsense opinions, but not exclude

16

opinions merely because they are impeachable.” Alaska Rent-A-Car, Inc. v. Avis Budget

17

Grp., Inc., 738 F.3d 960, 969 (9th Cir. 2013). See also Fed. R. Evid. 702, advisory

18

committee note to 2000 amendments (“[P]roponents do not have to demonstrate to the

19

judge by a preponderance of the evidence that the assessments of their experts are correct,

20

they only have to demonstrate by a preponderance of evidence that their opinions are

21

reliable. . . . The evidentiary requirement of reliability is lower than the merits standard of

22

correctness.”) (citation and internal quotation marks omitted). Further, the Court has

23

“broad discretion,” both in deciding whether the evidence is reliable and in deciding how

24

to test for reliability. United States v. Hankey, 203 F.3d 1160, 1168 (9th Cir. 2000).

25

Although courts serve an important “gatekeeper” role when it comes to screening

26

expert testimony, Gen. Elec. Co. v. Joiner, 522 U.S. 136, 142 (1997), this “gatekeeper”

27

role is “designed to protect juries” and is therefore “largely irrelevant in the context of a

28

bench trial.” Deal v. Hamilton Cty. Bd. of Educ., 392 F.3d 840, 852 (6th Cir. 2004) (quoted

- 48 -

1

with approval in United States v. Flores, 901 F.3d 1150, 1165 (9th Cir. 2018)). “[W]here

2

the factfinder and the gatekeeper are the same, the court does not err in admitting the

3

evidence subject to the ability later to exclude it or disregard it if it turns out not to meet

4

the standard of reliability established by Rule 702.” Flores, 901 F.3d at 1165 (citation

5

omitted). Further, where an expert’s credentials make him or her appear “at least minimally

6

qualified” and the question of admissibility is at all debatable, it is often logical to admit

7

the evidence subject to allowing the opposing party to renew its motion to exclude at trial,

8

rather than “risk trying th[e] case twice by considering the testimony of experts at a pretrial

9

hearing with the likelihood of hearing it again at trial.” B.K., 2020 WL 2616033 at *3.

10

This is so even if denying a motion to exclude without prejudice results in denying a motion

11

for summary judgment that depends in part on the success of the motion to exclude. Id.
The Parties’ Arguments

12

B.

13

Sterling argues that “Mr. Duffus relies on unsupported and erroneous assumptions”

14

in that he “assumes that all of the information alleged in the SAC in six broad categories

15

qualifies as Confidential Information as defined in the NDA” and that “all of the

16

information alleged in the SAC was in fact misappropriated, disseminated, or misused.”

17

(Doc. 163 at 3-4, internal quotation marks omitted [sealed].) Sterling further contends that

18

Duffus’s “inability to simply describe the information, its purported use or how the

19

information might provide a competitive advantage or otherwise provide value reveals that

20

Mr. Duffus did not actually . . . engag[e] in an expert analysis of valuing an intangible asset

21

such as confidential or proprietary information.” (Id. at 7-8, emphasis omitted [sealed].)

22

Further, Sterling argues that “Mr. Duffus’s claimed ‘with and without methodology’ is

23

unreliable” and his “royalty rate and franchise fee methodology is unreliable and improper

24

to assess damages in this case.” (Id. at 8, 14 [sealed].) Finally, Sterling argues that

25

Duffus’s opinion regarding the Vatos acquisition is predicated on the assumption that

26

“Callahan or ConApp caused a $5 million increase in the purchase price” in violation of

27

the NDA, which is both wrong and not helpful to the factfinder. (Id. at 16-17 [sealed].)

28

In response, PJD argues that because “Daubert is meant to protect juries from being

- 49 -

1

swayed by dubious scientific testimony” and “is largely irrelevant in the context of a bench

2

trial,” “Sterling’s challenges to Mr. Duffus’s opinions are more appropriately addressed at

3

the bench trial.” (Doc. 174 at 5, cleaned up.) PJD also argues that Duffus’s opinions are

4

admissible under Rule 702. (Id. at 6-7, 10.)

5

In reply, Sterling argues that “expert testimony may be excluded in bench trial

6

cases” and should be “where the opinion has no relevance to the case and presentation at

7

trial would be inefficient and a waste of time . . . [a]s is the case here.” (Doc. 196 at 1-2.)

8

Sterling reiterates that “Duffus’s opinion cannot help the Court” because it rests on the

9

“false factual premise[s] that Sterling and its Representatives ‘misappropriated and

10

misused PJD’s entire proprietary business model.’” (Id. at 2-4.)

11

C.

12

Although Sterling correctly notes that the Court may grant its motion if Duffus’s

13

testimony is so obviously unreliable that allowing him to testify would waste the Court’s

14

time, Sterling does not appear to dispute that the Court has discretion to deny the motion

15

without prejudice, thereby reserving the question for trial. Flores, 901 F.3d at 1165.

16

Having reviewed the briefing and record, the Court concludes that reserving this question

17

for trial is the most efficient way to proceed. The Court will be best positioned to make

18

the necessary determinations under Rule 702 after it hears Duffus’s testimony. Sterling’s

19

motion to exclude is therefore denied without prejudice.

20

…

21

…

22

…

23

…

24

…

25

…

26

…

27

…

28

…

Analysis

- 50 -

1

Accordingly,

2

IT IS ORDERED that:

3

1.

PJD’s motion for partial summary judgment (Doc. 159) is denied.

4

2.

Sterling’s motion for summary judgment (Doc. 162) is granted in part and

5

denied in part.

6

3.

Sterling’s motion to exclude Duffus (Doc. 163 [sealed]) is denied.

7

4.

PJD is reminded of its obligation under the scheduling order to file and serve

8

a Notice of Readiness for Final Pretrial Conference “within seven days after the resolution

9

of the dispositive motions.” (Doc. 76 at 8.)

10

Dated this 26th day of March, 2024.

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

- 51 -