L-3 Communications Corporation et al v. Jaxon Engineering & Maintenance, Inc. et al

Filing 214

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS: The Defendants' Motion to Dismiss 47 is GRANTED IN PART, insofar as the Court dismisses the RICO/COCCA claims in their entirety; the Lanham Act claim as against Defendants Charles Rettig, Scott White, James Youngman, Jerry Lubell, Kelly Rice, and John McClure; the tortious interference with prospective economic advantage claim against all Defendants except Jaxon, Randall White, and Susan Rettig; and the Sher man Act claim in its entirety, each pursuant to Fed.R.Civ.P. 12(b)(6); and the common-law unfair competition claim as redundant; and DENIED IN PART in all other respects. The Defendants' Objections 83 are OVERRULED and the Court AFFIRMS the Magistrate Judge's July 18, 2011 Minute Order (#70) granting the Plaintiff's Motion for Protective Order. by Judge Marcia S. Krieger on 3/26/12.(msksec, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable Marcia S. Krieger
Civil Action No. 10-cv-02868-MSK-KMT
L-3 COMMUNICATIONS CORPORATION; and
L-3 SERVICES, INC.,
Plaintiffs,
v.
JAXON ENGINEERING & MAINTENANCE, INC.;
JONI ANN WHITE;
RANDALL K. WHITE;
SCOTT WHITE;
SUSAN RETTIG;
CHARLES RETTIG;
JAMES YOUNGMAN;
JERRY LUBELL;
KELLY RICE;
JOHN MCCLURE; and
JOHN DOES 1-25,
Defendants.
______________________________________________________________________________
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
MOTION TO DISMISS
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to the Defendants’ Motion to Dismiss
(# 47), the Plaintiffs’ response (# 50), and the Defendants’ reply (# 55); and the Defendants
Objections (# 83) to the Magistrate Judge’s July 18, 2011 Minute Order (# 70) and ensuing
Protective Order (# 82) granting the Plaintiffs’ Motion for Entry of a Protective Order (# 62), the
Plaintiffs’ response (# 84), and the Defendants’ reply (# 88).

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FACTS
Although the Amended Complaint (# 33) contains some 400 allegations spread over 87
pages, the underlying allegations can be simplified. The Plaintiffs (collectively, “L3") are
engaged in the business or providing machinery and services designed to test the protective
measures found in electronic equipment against damage from electromagnetic pulses. L3 alleges
that, over the years, its employees – including some of the individual Defendants herein who
were formerly employed by L3 – invented new testing equipment, improved on existing
equipment, and otherwise devised new and more effective ways of conducting such testing. L3
alleges that each of these inventions or improvements, along with other general business
information such as customer lists and pricing data, constitute trade secrets belonging to L3. It
contends that each L3 employee, including the individual Defendants herein, contractually agree
to maintain the confidentiality of L3's trade secret information.
L3 contends that in or about 2007, Defendant Randall White, an L3 employee, devised a
plan to leave L3 and create a competing business entity. While still employed by L3, Mr. White
allegedly met with L3's major customers to convince them to support his new, competing
business, and he began using L3's internal acquisitions systems to purchase equipment that
would later be diverted to the new business. In May 2008, Mr. White and his wife, Defendant
Joni White (who was not an L3 employee), incorporated Defendant Jaxon Engineering and
Maintenance, Inc. (“Jaxon”). Thereafter, Mr. White and certain L3 employees, named as
Defendants here, continued to acquire equipment through L3 with the intention of later
transferring it to Jaxon, and/or acquired other items of L3's trade secret information in order to
give Jaxon access to that material.

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In July 2009, although it was not yet operational, Jaxon succeeded in obtaining certain
testing contracts from Serco, one of L3's major clients. L3 contends that these contracts were
awarded as the result of collusion between Mr. White and Donald Eich, a Serco representative
with whom Mr. White had worked closely while employed at L3. According to L3, Mr. White
and Mr. Eich conspired to ensure that the contracts that were awarded to Jaxon were either
drafted in such a way that L3 would be unable to meaningfully compete for them, or that L3
simply was not notified about the opportunity to bid. Jaxon’s bids were prepared by Mr. White
and relied heavily on L3's trade secret information. The Amended Complaint alleges that Jaxon
continues to compete with L3 by improperly using L3's trade secret information.
Much like the answer to a law school examination, L3's 24-claim Amended Complaint
asserts a wide variety of legal theories for recovery on these facts: (i) violation of the Racketeer
Influenced and Corrupt Organizations (“RICO”) Act, 18 U.S.C. § 1961 et seq., in that Jaxon (and
its participation with certain individual Defendants) constitutes an “enterprise,” in furtherance of
which the various Defendants have engaged in a pattern of predicate criminal offenses of mail
and wire fraud; (ii) conspiracy to violate RICO, based on essentially the same facts; (iii)
violation of the Colorado Organized Crime Control Act (“COCCA”), C.R.S. § 18-17-101 et seq.;
and (iv) conspiracy to violate COCCA, all based on essentially the same facts as the RICO
claim(s); (v) and (vi) patent infringement, apparently asserted only against Jaxon, on the grounds
that Jaxon is infringing upon two patents owned by L3; (vii) violation of the Colorado Uniform
Trade Secrets Act, C.R.S. § 7-74-101 et seq., against all Defendants; (viii)-(xi) common-law
breach of contract claims against the individual Defendants, with each separate claim relating to
different contracts that each individual Defendant entered into with L3; (xii) common-law

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conversion against all Defendants, insofar as each Defendant allegedly converted non-trade
secret physical property belonging to L3; (xiii) a claim sounding in false advertising, in violation
of the Lanham Act, 15 U.S.C. § 1125(a), against all Defendants insofar as the Defendants
solicited contracts from Serco and others by representing that Jaxon was capable of legally
providing the testing services it was bidding for when, in fact, it was unable to do so without
improperly employing L3's trade secrets; (xiv) a common-law claim for tortious interference
with prospective business advantage against all Defendants, insofar as the Defendants
improperly solicited contracts from Serco that would otherwise have been awarded to L3; (xv) a
common-law claim for breach of fiduciary duty against those Defendants who were formerly
employed by L3; (xvi) a replevin claim that L3 has since agreed to withdraw; (xvii) a commonlaw claim for unjust enrichment against all Defendants; (xviii) a claim for common-law
conspiracy against all Defendants; (xix) a claim for civil theft in violation of C.R.S. § 18-4-405
against those Defendants who were formerly employed by L3, of somewhat uncertain
provenance – it is not clear whether L3 is alleging that the material stolen are the physical goods
and trade secret materials, or whether the stolen material is “compensation” that the Defendants
received from L3 while they simultaneously conspired to develop and stock Jaxon, or whether
the civil theft claim is premised on both theories; (xx) - (xxiv) common-law fraud claims against
each of the former L3 employee Defendants, on the grounds that representations made by these
Defendants to L3 in their employee timesheets and records showing work on L3's behalf were
false; (xxv) violation of the Sherman Antitrust Act, 15 U.S.C. § 1 et seq., against Randall White,
Joni White, Scott White, Susan Retting, and Jaxon, insofar as these Defendants conspired with
Mr. Eich to rig bidding on Serco contracts such that Jaxon would receive the contracts even

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where L3 submitted a lower-cost bid; and (xxvi) statutory unfair competition under C.R.S. § 184-405 against Jaxon, based on essentially the same facts as the Lanham Act claim previously
described.
The Defendants move (# 47) to dismiss the Amended Complaint or, in the alternative, for
a more definite statement. Rather than to summarize the arguments contained in the Defendants’
53-page motion and 34-page supporting brief in this portion of the Order, the Court will defer
the discussion of the issues raised by the Defendants to the appropriate portions of the analysis.
Notwithstanding the pending Motion to Dismiss, the parties proceeded to commence
discovery. On July 1, 2011, L3 moved (# 62) for a protective order, explaining that both sides
were unwilling to produce business, technical, financial, and trade secret discovery, among other
things, without the safety of a protective order that would prevent undue dissemination of such
material. The motion recited that the parties had generally agreed upon a protective order
containing two tiers of confidentiality – a tier for simple “confidential” information and a second
tier that would be designated “attorneys’ eyes only” – but the parties could not agree as to
whether certain categories of individuals would be given access to one or both tiers. As relevant
here, the parties agreed that each side would appoint one “Technical Advisor” that would be
granted access to certain material for the purpose of providing interpretation and advice to
counsel. However, the Defendants objected to two aspects of this proposal: (i) that the Technical
Advisors would be granted access to material designated as “attorneys’ eyes only,” and (ii) the
fact that L3 intended to designate Charles Crain, a current employee of L3, as its advisor, rather
than a disinterested non-employee. L3's motion sought resolution of whether Mr. Crain could
serve as L3's Technical Advisor and, if so, whether Mr. Crain would be given access to

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“attorneys’ eyes only” material.
The Court referred L3's motion to the Magistrate Judge and on July 18, 2011, following a
hearing, the Magistrate Judge entered a Minute Order (# 70) granting, in part, L3's motion.
Specifically, the Magistrate Judge ruled that Mr. Crain would be permitted, as L3's Technical
Advisor, to view “attorneys’ eyes only” material, but that his access to such material would be
limited to “any successful bids made by Defendants prior to November 23, 2010, the date this
matter was filed.” As directed by the Magistrate Judge, the parties drafted and submitted a
proposed Protective Order embodying this and other rulings, and the Magistrate Judge issued
that Protective Order (# 82) on August 8, 2011.
On August 11, 2011, the Defendants filed Objections (# 83) pursuant to Fed. R. Civ. P.
72(a) to the Magistrate Judge’s ruling, arguing: (i) the Magistrate Judge erred in finding that L3
met its burden of showing that Mr. Crain, as a current L3 employee, was necessary as a
Technical Advisor rather than available non-employees with sufficient knowledge; (ii) relatedly,
that Mr. Crain’s access to Jaxon’s confidential information creates a risk of competitive harm to
Jaxon; and (iii) that in the alternative to excluding Mr. Crain as an Advisor entirely, the Court
should limit his access to technical information, and preclude him from having access to Jaxon’s
financial and pricing information.
ANALYSIS
A. Motion to Dismiss
1. Standard of review
Most of the Defendants seek dismissal of the claims against them for failure to state a
claim under Fed. R. Civ. P. 12(b)(6), among other grounds. In reviewing a motion to dismiss

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pursuant to Rule 12(b)(6), the Court must accept all well-plead allegations in the Complaint as
true and view those allegations in the light most favorable to the nonmoving party. Stidham v.
Peace Officer Standards and Training, 265 F.3d 1144, 1149 (10th Cir. 2001), quoting Sutton v.
Utah State Sch. For the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999). The Court must
limit its review to the four corners of the Complaint, but may also consider documents attached
to the Complaint as exhibits, Oxendine v. Kaplan, 241 F.3d 1272, 1275 (10th Cir. 2001), as well
as unattached documents which are referred to in the Complaint and central to the plaintiff’s
claim, so long as the authenticity of such documents is undisputed. Jacobsen v. Deseret Book
Co., 287 F.3d 936, 941 (10th Cir. 2002); Dean Witter Reynolds, Inc. v. Howsam, 261 F.3d 956,
961 (10th Cir. 2001).
With regard to what must be pled to avoid dismissal, the Supreme Court in Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949 (2009), described the standard that must be met as “facial
plausibility.” In this context, “plausibility” refers to the scope and degree of specificity of the
allegations in the complaint. Khalik v. United Air Lines, ___ F.3d ___, 2012 WL 364058 (10th
Cir. Feb. 6, 2012). Although Fed. R. Civ. P. 8(a)(2) still requires the pleader to supply only “a
short and plain statement of the claim,” that statement must provide more than “labels and
conclusions,” “a formulaic recitation of the elements of a cause of action,” or generalized
allegations of conduct that “encompass a wide swath of conduct, much of it innocent.” Id. In
this regard, the plaintiff must do more than articulate a set of facts that could “conceivabl[y]” or
“possibly” give rise to a claim; he must “nudge[ ] his claims across the line from conceivable to
plausible.” Id. Of course, the degree of specificity that will be required will necessarily vary
based on the context of the case. Id.

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Iqbal suggests that one way for the Court to proceed when considering a Rule 12(b)(6)
motion is for the Court to “identify[ ] pleadings that, because they are no more than conclusions,
are not entitled to the assumption of truth. 129 S.Ct. at 1950. The Court’s factual recitation set
forth above is an attempt to do so. Once the complaint has been winnowed down to only those
sufficiently-specific, non-conclusory factual allegations, the Court treats those allegations as true
and proceeds to examine whether, under the controlling law, those facts are sufficient to state a
claim.
2. RICO and COCCA claims
The Court first turns to the Defendants’ challenges to the sufficiency of the pleading of
L3's RICO and COCCA claims. The two statutes are similar and are generally construed
according to similar principles. Tara Woods Ltd. Partnership v. Fannie Mae, 731 F.Supp.2d
1103, 1125 (D.Colo. 2010). In broad terms, a party asserting a garden-variety RICO or COCCA
claim must plead four major elements: (i) conduct; (ii) of an enterprise; (iii) through a pattern of
two or more instances; (iv) of racketeering activity. Bixler v. Foster, 596 F.3d 751, 861 (10th Cir.
2010).
The Defendants first challenge the sufficiency of L3's allegations of predicate acts of
“racketeering activity.” Under RICO, acts which would constitute criminal mail or wire fraud,
in violation of 18 U.S.C. § 1341 or § 1343, can constitute “racketeering activity.” 18 U.S.C. §
1961(1) (defining “racketeering activity”). To plead these predicate acts, L3 must plead facts
showing: (i) Defendants engaged in a scheme to defraud by means of false pretenses; (ii) the
Defendants acted with the requisite intent to defraud; and (iii) the scheme contemplated the use
of mail or wire transactions. Burnett v. Amrein, 243 Fed.Appx. 393, 395 (10th Cir. 2007)

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(unpublished). Under Fed. R. Civ. P. 9(b), allegations of fraud must be pled with particularity,
and thus, in alleging the predicate acts of mail and wire fraud, L3 must “set forth the time, place,
and contents of the false representation, the identity of the party making the false statement, and
the consequences thereof.” Id.; Tal v. Hogan, 453 F.3d 1244, 1263 (10th Cir. 2006).
L3 attempts to itemize the specific allegations of mail and wire fraud in paragraph 183 of
the Amended Complaint. With regard to mail fraud allegations, L3 contends that, “by way of
illustration and without limitation,” the following acts by unspecified Defendants constituted acts
of mail fraud: (i) “sending by mail equipment purchase orders and/or communications regarding
such orders for equipment, using L-3's money, under L-3's contracts, for equipment that
Defendants conspired to steal for themselves . . .”; and (ii) transmitting bids and/or
communications associated with such bids by mail” for various contracts Jaxon received from
Serco, “using and including stolen L-3 trade secrets but falsely representing that such proprietary
information was owned by Jaxon.”
The Court will assume, for the moment, that L3's general allegations concerning the
object and means of the Defendants’ scheme to obtain equipment and information from L3 to use
for Jaxon is sufficient to plead the rough contours of the basic elements of a claim of mail fraud.
But the Court has some reservations that the Amended Complaint pleads the specific instances of
fraud with the requisite level of particularity. According to the Amended Complaint, the
Defendants’ acts of mail fraud fall into two categories: (i) ordering equipment through L3 with
the intent to divert it to Jaxon, and (ii) transmitting bid to Serco. When describing these events
in the Amended Complaint, L3 fails to specifically identify “the time, place, and contents of the
false representation, the identity of the party making the false statement, and the consequences

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thereof.”
For example, in paragraph 93(a), L3 alleges that, “on or about April 22, 2008,”
Defendant Randall White “began approving Purchase Requisitions spending L-3 funds on test
equipment . . . for eventual transfer to Jaxon.” This allegation is insufficient to plead an act of
mail fraud with the requisite particularity for several reasons. First, it appears to describe a
course of action by Mr. White over some period of time, but identifies only one date upon which
Mr. White acted. Even assuming that a single submission of a purchase requisition by Mr. White
on April 22, 2008 would be sufficient to state a claim for mail fraud, the allegation does not
identify, with any specificity, the “contents of the false representation” contained in Mr. White’s
purchase requisition. Indeed, it is not clear whether the “false representation” in the purchase
requisition was one of commission – i.e. Mr. White falsely attesting that the requested equipment
would be used for L3's purposes – or one of omission – i.e. Mr. White failed to disclose his
intent to use the equipment for Jaxon’s benefit.
Similarly, paragraph 99 of the Amended Complaint, which alleges that over a period of
time from April to December 2008, several Defendants “orchestrated the purchase of over 500
parts and pieces of equipment,” presumably with the intent to divert it to Jaxon. But these
generalized allegations are insufficient to identify the fraudulent representations or omissions
made by the Defendants, much less the dates and specific makers of the fraudulent statements.
The Court has canvassed the other allegations in the Amended Complaint that relate to the
submission of purchase requisitions through L3, and finds no allegations therein with the
necessary level of particularity that are sufficient to plead a mail fraud scheme.
Turning then to the second alleged form of mail fraud – the submission of bids by Jaxon

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– the same issues are evident. Although the Amended Complaint identifies the bids by the
contract number for orders issued to Jaxon by Serco, the Amended Complaint gives no
indication of the date of any alleged fraudulent bid, the identity of the person creating the bid, or
the specific fraudulent statement contained in the bid. At best, L3 pleads only that the bids
“expressly or impliedly represented that trade secrets of L-3 were actually proprietary
information owned by Jaxon,” but L3 does not describe with any detail the particular content of
the bids that “expressly or impliedly” constituted this representation.
Accordingly, the Court agrees with the Defendants that L3 has failed to allege the
predicate acts of mail fraud with the degree of particularity required by Rule 9(b).
Turning then to L3's allegations of wire fraud, L3 again describes the alleged wire fraud
schemes encompassing a few general categories of actions: (i) Randall White “signing L-3
Purchase Requisitions to purchase equipment” (and then “falsely representing the equipment as
belonging to AFSPC,” a different entity) and dispatching those requisitions by wire; (ii)
transmitting bids to Serco by wire; and (iii) “making payments for equipment and/or receipt of
payments” from Serco, again by wire. The Court will not belabor the analysis by repeating its
findings above: that the Amended Complaint fails to adequately identify the particulars of any
fraudulent statement or omission by Mr. White with regard to any of the referenced categories of
acts of wire fraud. In no instance has L3 specifically identified the time and specific false
contents of any wire communication made by Mr. White.
The Defendants argue that the Court should “relax” the particularity requirements of Rule
9(b) because “the facts are uniquely within the defendants’ knowledge.” Citing Scheidt v. Klein,
956 F.2d 963, 967 (10th Cir. 1992). Scheidt does not stand for the proposition that the Court can

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“relax” Rule 9(b)’s particularity requirement; instead, it stands for the proposition that
“allegations of fraud may be based on information and belief when the facts in question are
peculiarly within the opposing party’s knowledge,” but even then, “the complaint [must] set[ ]
forth the factual basis for the plaintiff’s belief.” Id. (emphasis added).
Here, the Court has grave doubt that at least some of the facts underlying L3's allegations
of mail and wire fraud are “peculiarly within” the Defendants’ knowledge, such that L3 could
instead plead the relevant particulars upon information and belief instead of actual knowledge.
Because a major component of the fraudulent schemes involved the Defendants using L3
purchase requisitions to obtain the purloined equipment, it would reasonably follow that L3
would have copies of those requisitions or other records that would reveal what, if any, false
statements or omissions were contained therein. Assuming, without necessarily finding, that the
contents of bids submitted by Jaxon to Serco would be unknown to L3, such that L3 could
instead plead the fraudulent nature of such bids “upon information and belief,” Scheidt
nevertheless requires that L3 make clear the factual basis for L3's belief as to the contents of
such bids. L3 has not made any such showing regarding the basis of its belief that Jaxon’s bids
to Serco contained false representations or omissions.
L3 further argues that, under U.S. v. Kennedy, 64 F.3d 1465, 1475-76 (10th Cir. 1995), it
is only required to allege the existence of a “scheme to defraud,” rather than to specifically
identify any particular false statements. In Kennedy, a defendant convicted of mail fraud argued
that the evidence against him was insufficient, insofar as the government failed to put on
evidence that Kennedy made specific misrepresentations to each of the victims. Finding that
argument meritless, the 10th Circuit explained that the general prohibitory thrust of the mail fraud

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statute was the devising of the scheme, not the making of particular misrepresentations to
particular individuals, and thus, so long as there was sufficient evidence to establish the
existence of a fraudulent scheme by Kennedy that used the mails, the question of whether a
particular victim was the recipient of a particular misrepresentation was irrelevant. Id. at 147778.
Kennedy provides no real assistance to L3 in these circumstances. In Kennedy, the
defendant’s conviction was affirmed because there was evidence that he used the mails in
furtherance of a scheme that involved him making false representations to somebody, even if that
somebody was not one of the victims who testified. Here, L3 has not sufficiently alleged with
sufficient particularity a false representation made by the Defendants to anybody. L3's reading
of Kennedy to require only the pleading of a scheme, not any false representations, is equally
unavailing. As explained there, the crime of mail fraud may exist where a defendant either
formulates a “scheme to defraud”or a “scheme to obtain money or property by means of false
statements.” Id. at 1476, discussing U.S. v. Cronic, 900 F.2d 1511, 1513-14 (10th Cir. 1990).
The latter intrinsically requires false statements to bring about the scheme, and thus, to the extent
L3's mail fraud allegations depend on this type of scheme, it is necessary for L3 to plead the
requisite false statement(s) that supported the scheme with the degree of particularity required by
Rule 9(b).
To the extent L3 was instead relying on the “scheme to defraud” component of 18 U.S.C.
§ 1341, that theory raises more difficult questions. Cronic explained that, unlike schemes
premised on false representations, a “scheme to defraud” was one in which a person defrauded
another, yet did so without actually making any affirmative misrepresentation. 900 F.2d at 1514.

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Cronic explained that the “scheme to defraud” theory “focuses on the intended end result, not on
whether a false representation was necessary to effect the result.” Id. at 1513. Assuming for the
moment that the difference between a “scheme to defraud” and a scheme premised on false
representations are differentiated by whether a defendant made affirmative false statements (thus
giving rise to a false representation claim) or omitted material information (thus giving rise to a
scheme to defraud), L3 presenting its mail fraud claims as the latter carries some complications.
Once again, L3's mail fraud theories are premised on two types of conduct: defendants ordering
equipment using L3's money with the intent to convert it to Jaxon’s use, and defendants bidding
for Serco contracts without disclosing their theft of L3's trade secrets. It is difficult to envision
how either type of conduct falls within a “scheme to defraud” theory of mail fraud.
With regard to the equipment-based contentions, these are contentions that sound in the
simple tort of conversion: L3 purchased and owned certain equipment, and the Defendants
misappropriated that equipment for their own benefit. The means by which the Defendants
caused L3 to acquire the equipment is largely irrelevant in such circumstances – whether they
resorted to omissions to cause L3 to buy more equipment than it needed, or whether they simply
pilfered existing stores of equipment in L3 stockrooms is largely immaterial, as the relevant
conduct is the Defendants’ theft, not L3's acquisition of the material. Perhaps a different
analysis might be appropriate if the allegations were that the Defendants somehow convicted L3
that Jaxon was a subcontractor or corporate subdivision and induced L3 to purchase the
equipment for Jaxon’s benefit, but the facts alleged herein are far less subtle. Thus, when the
focus is on the Defendants’ alleged theft of L3's equipment, it is difficult to conceive of how a
“scheme to defraud” exists, rather than a simple “scheme to convert.” In such circumstances, the

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requisite elements of mail fraud are not present, thus failing to provide a predicate act for a
RICO/COCCA claim.
With regard to the bidding-based contentions, the analysis is slightly more abstract. As
the Court understands L3's theory, Jaxon defrauded Serco by failing to note in its bid documents
that Jaxon would be performing the services it was proposing by using L3's trade secrets. But
the Amended Complaint gives no indication that such an omission would have been considered
material by Serco, such that it was “defrauded” by the omission of such information. The
Amended Complaint appears to allege that Serco was merely contracting for testing of its
electric equipment according to certain specifications, and there is no indication that Serco was
at all concerned whether Jaxon performed that testing using its own proprietary methods or
whether it did so using testing methods it improperly obtained from others, so long as the proper
testing was done. Thus, it is difficult to envision how, under the allegations contained here, the
Defendants engaged in any “scheme to defraud” Serco. This theory only becomes more
troubling when one recognizes that, according to the Amended Complaint, Mr. Eich, one of
Serco’s representatives, was fully aware of the Defendants’ intention to set up Jaxon by
improperly using L3's trade secrets. Amended Complaint, ¶ 92 (Mr. White “worked with Donald
Eich . . . to obtain [his] assurances that if he were to create a competing entity and steal L-3's
intellectual property . . . that he would be awarded contracts . . . through Serco.” Thus, the Court
cannot find that L3 has adequately alleged mail or wire fraud claims under a “scheme to
defraud” theory.
Accordingly, the Court finds that L3 has failed to adequately plead the RICO/COCCA
predicate acts of mail or wire fraud, and this defect is fatal to all of their RICO/COCCA claims.

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Those claims are thus dismissed without prejudice pursuant to Fed. R. Civ. P. 12(b)(6).1 The
Court does not reach the Defendants’ remaining arguments with regard to these claims.
3. Patent infringement claims
With regard to the two claims for patent infringement, the Defendants contend that L3
has failed to adequately plead the means by which the Defendants’ products infringe upon L3's
patents. To plead a claim for patent infringement, a plaintiff must allege facts showing that he
owns the patent in question; that the defendant “has been infringing the patent by making,
selling, and using the device embodying the patent”; and that the plaintiff has given the
defendant notice of its infringement. McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1357
(Fed.Cir. 2007). The plaintiff is not required to specifically recite “each element of the claims of
the asserted patent” that are allegedly infringed. Id. All that is necessary is to “plead facts
sufficient to place the alleged infringer on notice as to what he must defend.” Id.
Here, the Court finds that L3 has sufficiently identified the patents allegedly infringed
and has specifically identified specific devices made or used by Jaxon that result in such
infringement (the “Automated EM Barrier Monitoring Systems Equipment” and “short pulse and
intermediate pulse transient pulse generators for Pulse Current Injection”). Certainly, L3's
Amended Complaint is no model of specificity and affords little more notice beyond simply
identifying the alleged infringing devices, but the Court finds that this is sufficient under the

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L3's response generically asserts an intention to “amend the Amended Complaint to cure
any deficiencies.” Given the contentiousness of this matter to date, and the fact that L3 has
already amended its complaint, both formally (# 33) and informally by stipulation (# 61), the
Court is not inclined to grant blanket leave to L3 to further amend its pleadings. If L3 believes
that it can cure the defects in its pleadings, it may seek leave to amend according to Fed. R. Civ.
P. 15, accompanying such a request with a proposed amended pleading within 7 days of the date
of this Order.
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circumstances to put the Defendants on notice. Any further elucidation as to precisely how L3
contends that Jaxon’s devices infringe upon L3's patents may be had through discovery.
4. Uniform Trade Secret Act
The Defendants argue that L3's claim under the Colorado Uniform Trade Secrets Act
should be dismissed because the claim “fails to identify sufficiently any alleged trade secrets,
and fails to plead which Defendants allegedly misappropriated such alleged trade secrets.”
The Court finds that the Amended Complaint sufficiently discloses some of the trade
secrets involved here with specificity: information relating to “the selection and combination of
switches, capacitors, inductors and resistors in pulse forming networks” for various pulser
machines; information relating to “antenna selection, design, and assembly”; software programs
“for controlling, capturing, and compiling raw CWI test data”; customer lists of purchasers of
HEMP technology; pricing templates; vendor lists; and drawings and designs of electromagnetic
enclosures, among other things. Although the Defendants would certainly prefer that L3 be even
more specific in identifying each particular allegedly misappropriated trade secret, and that it be
prohibited from referencing other alleged trade secrets in more general terms, the Court cannot
say that the Amended Complaint is so bereft of specifics regarding any of the trade secrets at
issue here that dismissal is warranted.
Turning to the Defendants’ contentions that the Amended Complaint fails to identify
which Defendants allegedly misappropriated the trade secrets, the Court disagrees. The
Amended Complaint specifically lists each individual Defendant and describes, in some detail,
certain confidential or proprietary L3 materials that each Defendant improperly obtained, copied,
or otherwise disseminated. The Court cannot say that these descriptions are so bereft of detail

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that the Defendants are deprived of meaningful notice of the allegations against them.

5. Breach of contract claims
The Defendants contend that, with regard to each of the breach of contract claims against
them, L3 fails to adequately allege that those contracts were supported by consideration.
The Colorado Supreme Court has rejected the notion that a complaint alleging breach of
contract must necessarily recite the consideration securing that agreement or else face dismissal.
Smith v. Mills, 225 P.2d 483, 485 (Colo. 1950). Rather, it holds that “alleging entrance into a
contract is sufficient allegations of its validity, and it is not necessary to set out specifically the
nature of existence of consideration to enable the complaint to withstand motion for dismissal.”
Id. Certainly, the Defendants may contend on summary judgment that there is no sufficient
consideration securing their contractual promises, and L3 will then be obligated to come forward
with sufficient proof of adequate consideration, but at this stage of the litigation, the failure of
the Amended Complaint to recite the terms of consideration is not fatal.
Separately, the Defendants allege that L3's breach of contract claim against Defendant
Lubell fails to state a claim because the agreement in question between Mr. Lubell and L3 does
not preclude Mr. Lubell from offering consulting services to third parties outside the
contractually-defined areas of exclusivity, and the Amended Complaint does not specifically
allege that the services Mr. Lubell supplied to Jaxon were within those areas of exclusivity.
Although the Defendants are, strictly-speaking, correct on this point, a reasonable inference to be
drawn from the Amended Complaint is that L3 is asserting that Mr. Lubell’s services to Jaxon
are within the areas in which he promised exclusive loyalty to L3. Whether or not this inference

18

is ultimately supported by the record is a question that must await summary judgment, but for
pleading purposes, the Court finds that the breach of contract claim against Mr. Lubell is
sufficient.
6. Conversion claim
To state a claim for conversion under Colorado law, L3 must allege that: (i) a defendant
exercised dominion or control over property; (ii) that property belonged to L3; (iii) the
defendant’s exercise of control was unauthorized; (iv) L3 demanded return of the property; and
(v) the defendant refused to return it. See e.g. Glenn Arms Assocs. v. Century Mortg. and
Investment Corp., 680 P.2d 1315, 1317 (Colo.App. 1984). The Defendants contend that L3's
pleading of this claim suffers from several deficiencies, which the Court will address in turn.
First, the Defendants contend that L3 has not specifically identified the allegedly
converted property, instead resorting to a contention that such property “includ[es] items such as:
computers, cameras, business forms, templates, images, illustrations, pictures, notes, notebooks,
and other organizational mechanisms, and analysis and comparison tools.” The Defendants take
issue with the “items such as” language as being insufficiently specific, but the Court finds that
L3's itemization of the various categories of items taken provides the Defendants with sufficient
notice of the claims against them to permit them to marshal a defense. Specific itemization of
the property allegedly converted must await discovery.
Next, the Defendants contend that the Amended Complaint does not specify which
Defendant converted which items of property, nor does it plead facts sufficient to demonstrate
that each Defendant lacked any legal right to control the disposition of the property in question.
The Court finds that the Amended Complaint adequately alleges specific behavior on the part of

19

some Defendants, including Randall White, Scott White, and Susan Rettig as being involved
with acts to obtain, sequester, and ultimately remove items of equipment belonging to L3. The
Amended Complaint does not contain similar allegations against other individual Defendants,
but at this point, the Court is not prepared to simply dismiss the conversion claim as against
other Defendants. It appears that L3's conversion claim is intended to apply to materials other
than those considered to be “trade secrets,” and where some other Defendants are accused of
obtaining or retaining other items of property, it is not always clear whether that property is
alleged to be a “trade secret” or physical property subject to the conversion claim. This is an
area in which discovery and the strictures of Rule 11 provide adequate protection to those
Defendants against whom no cognizable conversion claim might exist. If, at the close of
discovery, L3 is unable to make a plausible factual showing that a given Defendant converted
any physical property belonging to L3 and L3 refuses to either stipulate or otherwise make clear
that the conversion claim is not asserted against that Defendant, the appropriate Defendant may
not only seek summary judgment on the conversion claim but may also request sanctions against
L3 pursuant to Fed. R. Civ. P. 11.
As to the remaining elements that the Defendants challenge – the sufficiency of
allegations as to L3's demand for return of the property and its suffering of damages as a result,
the Court finds that to the extent no express allegation to these effects is present, such allegations
are a permissible inference to be drawn from the facts alleged in the Amended Complaint.
Accordingly, the Court denies the Defendants’ motion to dismiss the conversion claim.
7. Lanham Act/false advertising claim
To state a claim for false advertising under the Lanham Act, L3 must allege: (i) that

20

Jaxon made a material false or misleading representation in connection with the promotion of its
product or service; (ii) that statement was made in interstate commerce; (iii) the false statement
was likely to cause confusion or mistake as to the characteristics of its goods or services; and (iv)
the statement resulted in injury to L3. Sally Beauty Co. v. Beautyco, Inc., 304 F.3d 964, 980
(10th Cir. 2002).
The Defendants contend that this claim should be dismissed against certain individual
Defendants – Charles Rettig, Scott White, James Youngman, Jerry Lubell, Kelly Rice, and John
McClure – on the grounds that there are no allegations that these Defendants participated in any
statements promoting Jaxon and that the Lanham Act does not recognize imputed or
aiding/abetting liability for false advertising. Citing Electronic Lab Supply Co. v. Cullen, 977
F.2d 798, 805-06 (3d Cir. 1992). L3 responds that the Lanham Act does permit liability on an
aiding or abetting theory. Citing Proctor & Gamble Co. v. Haugen, 317 F.3d 1121, 1128 (10th
Cir. 2003).
Both citations are off-point. Electronic Lab Supply considered whether attorneys who
sought an ex parte property seizure order in a Lanham Act case can be considered an “applicant”
for a seizure order that is later found to be wrongful, thus subjecting them to liability under 15
U.S.C. § 1116(d)(1)(A). Finding that attorneys drafting seizure orders were not “applicants,” the
court then turned to the question of whether they could be liable for aiding or abetting an
“applicant” for a wrongful seizure order. Relying primarily on a test that examined (i) whether
the statutory language expressly limits liability to a specifically-defined group of perpetrators;
and (ii) whether the statutory claim was analogous to criminal or tort claims (where aiding and
abetting liability is common), the court concluded that although the statutory remedy for

21

wrongful seizure orders was tort-like, the statute’s language imposing such liability only on
“applicants” was sufficiently narrow that it would be inappropriate to broaden the statute’s scope
by incorporating aiding and abetting liability. Id. at 806.
Because Electronic Lab Supply was specifically interpreting terms in a statutory section
different from the one presented here, its outcome is not controlling. This is particularly true
where the narrowness of the wrongful seizure remedy contemplated by 15 U.S.C. § 1116 stands
in sharp contrast to the relatively broad scope of a Lanham Act false advertising claim under 15
U.S.C. § 1125(a). The former limits itself to the “applicant” for the seizure order, whereas the
latter imposes liability on “any person who, on or in connection with any goods or services,”
uses misleading representations about a product. Given the far broader reach of § 1125(a) than §
1116, this Court is not convinced that the outcome in Electronic Lab Supply is persuasive here.
At the same time, Haugen is also off-point. The cited opinion is the end of that case’s
long journey through the court system, and is primarily concerned with questions of whether the
trial court properly applied the 10th Circuit’s orders on remand from a prior appeal. To fully
appreciate the import of that decision, the Court must first explain the proceedings that preceded
it. The plaintiff, a manufacturer of soap products, sued certain distributors of its competitor,
Amway, for false advertising under the Lanham Act (along with certain tort claims under state
law), alleging that the distributors had been spreading false rumors associating the plaintiff with
Satanism. The plaintiff also sought to hold Amway liable for that conduct under a aiding and
abetting theory. The trial court initially granted summary judgment to the defendants on the
grounds that the rumors did not relate to the quality of the plaintiff’s goods and services itself,
but on appeal, the 10th Circuit reversed, finding that the Lanham Act also prohibited false

22

advertising relating to a competitor’s “commercial activities,” and the rumors arguably
implicated that standard. Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1273 (10th Cir.
2000). Thus, the 10th Circuit vacated the grant of summary judgment to the defendants on the
Lanham Act claims and remanded that matter for further consideration. The 10th Circuit also
considered whether the trial court’s finding that Amway could not be held vicariously liable for
the distributors’ conduct under state law with regard to state tort claims was correct. Id. at 1277.
Concluding that the question turned on whether the distributors were employees of Amway or
independent contractors, or possibly whether the distributors were acting as Amway’s agents
when spreading the rumors, the 10th Circuit found that the record failed to support either theory
of vicarious liability. Id. at 1277-78. Thus, the Court of Appeals affirmed that portion of the
trial court’s order that granted judgment to Amway on claims sounding in vicarious liability for
state torts.
Upon the remand to reconsider the Lanham Act claims, the trial court noted that the
plaintiff was now asserting that “the vicarious liability standards under the Lanham Act are less
stringent than under Utah common law,” such that the 10th Circuit’s determination of vicarious
liability under state law did not control the argument as to whether such liability existed with
regard to the Lanham Act claim. Proctor & Gamble Co. v. Haugen, 158 F.Supp.2d 1286, 1292
(D.Ut. 2001). The trial court found that the plaintiff’s position on this issue as the case
proceeded was “muddled,” but that in any event it found that “no vicarious liability claim [under
the Lanham Act] exists against Amway in any event.” Id. at 1294. It first noted that “[e]ven if
there is a difference between the state and Lanham Act vicarious liability standards (which [the
plaintiff] has wholly failed to explain), and assuming arguendo that the Lanham Act imposes a

23

more liberal standard than Utah state law . . . the differences are not such that [the plaintiff]
could succeed on such a claim in light of the Tenth Circuit’s ruling.” Id. Reciting the 10th
Circuit’s factual findings as to Amway’s lack of involvement with the rumors, the trial court
concluded that “the Tenth Circuit’s ruling necessarily forecloses a vicarious liability claim under
the Lanham Act.” Id. at 1296.
This, then, sets the stage for the Haugen opinion cited by the Defendants here. Proctor &
Gamble appealed the trial court’s decision again, arguing that the trial court erred in conforming
its vicarious liability analysis under the Lanham Act to the analysis of vicarious liability under
Utah state law, as affirmed by the Court of Appeals. The 10th Circuit observed that, even at that
advanced stage, Proctor & Gamble “identifies no discrete distinctions between Utah’s vicarious
liability standards and those of the Lanham Act – apart from its vague insistence that the Third
Circuit’s holding in AT&T v. Winback and Conserve [Program, Inc., 42 F.3d 1421, 1438 (3d
Cir. 1994)] is evidence of a standard separate and apart from Utah common law.” 317 F.3d at
1127. The 10th Circuit interpreted the AT&T case to hold that “it is proper to import into [15
U.S.C. § 1125(a)] common law concepts of agency, apparent authority, and vicarious liability.”
Id., citing McCarthy on Trademarks and Unfair Competition, § 27:53 (4th Ed. 2002). It observed
that AT&T had also remanded the matter to a trial court to assess “whether the sales
representatives [sued in a vicarious capacity for trademark infringement] were agent independent
contractors or non-agent independent contractors.” Id., citing AT&T, 42 F.3d at 1439.
Concluding that the agency and independent contractor questions addressed in AT&T were
identical to the same agency and independent contractor questions the 10th Circuit had previously
examined under Utah law, the 10th Circuit found that Proctor & Gamble“has made an insufficient

24

showing that vicarious liability under the Lanham Act is substantially different than under Utah
law.” Id. at 1128.
Arguably, Haugen could be read to be an endorsement by the 10th Circuit of the concept
of vicarious liability in Lanham Act cases, at least to the extent that AT&T recognized it to exist.
But this then requires an examination of the scope of the AT&T case. There, AT&T sued the
defendant, who purchased services from AT&T in bulk and resold them to smaller customers,
alleging that the defendant falsely represented to customers that it was affiliated with AT&T.
The defendant argued that any misrepresentations were made by independent sales
representatives over whom the defendant exercised no control. The court thus sought to examine
the extent to which agency theory existed under the Lanham Act; the court was careful to explain
that it was not opining as to whether “aiding and abetting” liability existed under the Lanham
Act, as aiding and abetting theory addresses “a “different act” (encouragement) than the
substantive offense does, whereas agency liability addresses who should be held responsible for
a substantive offense that has indisputably been committed. Id. at 1430. To the AT&T court,
that distinction was essential, as it observed that aiding and abetting liability “largely has been
confined [in the federal system] to securities fraud,” whereas agency liability “has long been a
part of the federal system.” Id. at 1431. Thus, although AT&T ultimately concluded that agency
liability could exist under the Lanham Act, the court was careful to stated that “aiding and
abetting should not be transplanted into the more settled realm of agency law.” Id. at 1432.
Accordingly, the Court finds that Proctor & Gamble does nothing more than adopt the
contours of AT&T, and in so doing, approves only of the importation of agency theory into
Lanham Act infringement clams, but it does not purport to approve of aiding/abetting liability

25

under the Act. The Defendants here cite to no other authority for the proposition that vicarious
liability for violations of 15 U.S.C. § 1125(a) extends beyond the boundaries of standard agency
theory, and thus, the Court finds that on the record presented here, L3's Lanham Act claims
against the various employees of Jaxon must stand or fall based on the extent to which the
Amended Complaint alleges sufficient facts to show that these employees acted as agents of
Jaxon in bringing about the alleged false advertising.
Expressed in these terms, it is apparent that L3's allegations are insufficient. L3's
Lanham Act claims against the employees of Jaxon does not allege, as an agency-based claim
typically would, that an act of false advertising by a subordinate permits liability to be escalated
up the chain to a person who allegedly authorized that act; rather, L3's theory of liability seeks to
push liability downward, exposing low-level employees in Jaxon to liability for conduct engaged
in by their superiors, for which they had no alleged ability to control or direct. L3 argues that
these Defendants transferred L3's trade secrets to Jaxon “with actual or constructive knowledge
that Jaxon or others would misrepresent the technology as being owned by Jaxon,” but such an
argument addressing only an aiding/abetting theory, not an agency theory. Because the
Amended Complaint fails to allege facts sufficient to impose Lanham Act liability on these
Defendants under an agency theory, the Lanham Act claims are dismissed as against Charles
Rettig, Scott White, James Youngman, Jerry Lubell, Kelly Rice, and John McClure.
The Defendants also make a perfunctory argument that L3 has failed to adequately allege
that it is likely to be injured by any misrepresentation made by Jaxon in connection with the sale
of its products. The Court finds that a reasonable inference to be drawn from the allegations in
the Amended Complaint is that Jaxon is only able to compete with L3 for contracts by

26

unlawfully exploiting L3's trade secrets, and that if Jaxon were prevented from using such
secrets, it would not be able to advertise and bid for the same contracts as L3. This is sufficient,
at this early stage of the litigation, to satisfy the injury element of the claim.
8. Tortious interference claim
To assert a claim for tortious interference with prospective economic advantage, L3 must
allege: (i) that the Defendants either induced a third person not to enter into or continue a
contractual relationship with L3, or prevented L3 from acquiring or continuing the prospective
relation; (ii) that the Defendants did so intentionally; and (iii) that they used improper means to
do so. MDM Group Assocs., Inc. v. CX Reinsurance Co., 165 P.3d 882, 886 (Colo.App. 2007),
citing Restatement (Second) of Torts, § 766B (1979).
The Defendants contend that L3 has not alleged that L3 “does not allege that it would
have obtained (or even that it submitted bids regarding) the business purportedly lost,” and that it
merely alleges that “it had a right to continued business with Serco and unspecified other thirdparty companies.” This is an overly-cramped reading of the Amended Complaint. L3 alleges
that it was the incumbent provider of services to Serco, and that the Defendants “rigged” the
bidding on contracts to continue those services in such a way that L3 would either not be invited
to bid on them or were given incomplete information upon which to submit a bid. A reasonable
reading of the Amended Complaint thus suggests that the contracts allegedly obtained by Jaxon
were for services that L3 was currently providing to Serco and, presumably, would have
continued to provide had the Defendants not induced Serco to manipulate the bidding on them.
This is sufficient to state a claim for tortious interference.
The Defendants argue that cases such as Memorial Gardens, Inc. v. Olympian Sales &

27

Mgmt. Consultants, Inc., 690 P.2d 207, 210-12 (Colo. 1984), stand for the proposition that “a
company has no legal right to future contracts with current or prospective customers” is
misplaced. Memorial Gardens involved a claim for tortious interference with an existing
contract, not a prospective economic advantage, and thus, is of little illustrative value here.
Cases such as MDM make clear that expectations of receiving future contracts are protected
against tortious interference so long as “there is a reasonable likelihood or reasonable probability
that a contract would have resulted” absent the interference. 165 P.3d at 886. L3's allegation
that it was the incumbent provider of similar services to Serco on similar contracts is sufficient to
allege a reasonable probability that L3 could have obtained the Jaxon contracts as well.
The Defendants also complain that L3 does not adequately allege which Defendants
allegedly interfered with L3's prospective economic advantage. This complaint is well-taken,
insofar as the statement of the claim refers only generally to “Defendants.” In its response, L3
purports to itemize the particular conduct by each Defendant that allegedly gives rise to the
claim. There can be little dispute that, under the facts as alleged, Jaxon and Randall White were
the primary architects of the “bid-rigging” scheme that underlies this claim. There are also
sufficient allegations in the Amended Complaint that Susan Retting was “involved with
preparing [a] proposal” to Serco for the contracts at issue here, making the claim cognizable
against her. However, L3's allegations with regard to the remaining Defendants merely contend
that these Defendants participated in stealing trade secret information for Jaxon, not in assisting
in rigging the bidding process with Serco to Jaxon’s benefit. Accordingly, the tortious
interference claim is dismissed against all Defendants other than Jaxon, Randall White, and
Susan Rettig.

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9. Breach of fiduciary duty claim
To plead a common-law claim for breach of fiduciary duty,2 L3 must allege that: (i) there
was a fiduciary duty that existed between the parties; (ii) the Defendants breached that duty; and
(iii) L3 was damages as a result. FDIC v. Refco Group, Inc., 989 F.Supp. 1052, 1080 (D.Colo.
1997). Under Colorado law, a variety of relationships can create fiduciary responsibilities
among the parties, even where the relationships themselves are not per se fiduciary in nature.
Atlantic Richfield Co v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1162 (10th Cir. 2000). A
fiduciary duty arises when “one person is under a duty, created by his undertaking, to act
primarily for the benefit of another in matters connected with the undertaking.” Id., citing
Destefano v. Grabrian, 763 P.2d 275, 284 (Colo. 1988).
The Defendants argue that, to the extent their alleged fiduciary duties to L3 arose out of
their signing of various contracts promising confidentiality and non-dissemination of L3's trade
secrets, the damages associated with the breach of such fiduciary duties are co-terminus with the
damages flowing from their breaches of those contracts, such that the economic loss rule
prohibits the fiduciary duty claim. L3 responds that, wholly apart from their contractual
obligations, the Defendants owed common-law fiduciary duties arising from their employment
with L3 and their access to L3's confidential information. Cases such as Jet Courier recognize
such a common-law duty of loyalty by employees arising independently from any contractual

2

L3 contends that its claim is one for “breach of loyalty” as recognized in Jet Courier
Sev., Inc. v. Mulei, 771 P.2d 486, 492 n. 10 (Colo. 1989), rather than for any alleged fiduciary
duty. For purposes of this analysis, the conceptual differences between these two types of claims
are immaterial.
29

agreement between the parties, preventing the employees from making certain types of
preparations to compete against their employer while remaining in that employ. Those are
precisely the sorts of allegations contained in the Amended Complaint, and thus, the Court finds
that the economic loss rule does not preclude any breach of fiduciary duty or similar claim by
L3.
10. Unjust enrichment claim
The Court need not specifically address the Defendants’ objections to L3's unjust
enrichment claim, as it is clear to the Court that the allegations state a cognizable unjust
enrichment claim against each Defendant. With regard to the Defendants’ argument that C.R.S.
§ 7-74-108 preempts any tort claims of unjust enrichment premised upon claims of
misappropriated trade secrets, the Court finds the reasoning in Powell Products, Inc. v. Marks,
948 F.Supp. 1469, 1474-75 (D.Colo. 1996), to persuasively explain why the preemptive reach of
that statute is necessarily narrow. The Court finds that L3 has alleged numerous ways in which
the Defendants were unjustly enriched by events that do not involve any trade secrets of L3,
including their misappropriation of physical equipment, misuse of L3's internal computer
resources, and various other acts.
11. Civil conspiracy claim
The Court also summarily rejects L3's arguments regarding alleged defects in the
pleading of L3's civil conspiracy claim against the Defendants. Taken in the light most favorable
to L3, with reasonable inferences drawn in its favor, the Amended Complaint adequately alleges
that each Defendant knowingly entered into an agreement to form an entity to compete with L3
and to employ unlawful means – most significantly, the improper use of L3's confidential

30

information – to further that agreement. The fact that not all Defendants are alleged to have
engaged in unlawful conduct in furtherance of the conspiracy – e.g. the allegation that Joni
White merely incorporated Jaxon and served as an officer of it – is irrelevant; it is axiomatic that
an individual member of a conspiracy is liable for all foreseeable unlawful acts of the
conspiracy.
12. Civil theft claim
As with the conversion claim, the Court finds that the allegations in the Amended
Complaint, coupled with reasonable inferences to be drawn therefrom, are sufficient to allege the
necessary elements of this claim against all Defendants. To the extent L3 is ultimately unable to
establish a colorable factual predicate to assert this claim against a given Defendant and refuses
to concede the claim against that Defendant, the Court will entertain a properly-supported
motion for sanctions.
13. Fraud claims
L3 alleges claims of common-law fraud against each of the former employee Defendants,
allegedly arising from false claims on those employees’ timesheets that they were performing
work for L3 when, in fact, they were performing work on behalf of Jaxon. The Defendants
contend that L3 has not pled the requisite details of the alleged fraudulent statements with the
level of specificity required by Rule 9(b).
The Court finds that the Amended Complaint is sufficiently detailed on this point to meet
the rule’s requirements. The Amended Complaint adequately describes the substance, if not
necessarily the precise words, of the misrepresentation – namely, the contention that the
Defendants were performing work for L3 at a given time when, in reality, they were not. The

31

failure of the Amended Complaint to supply the dates of these representations is unfortunate, but
does not render the allegations so non-specific that the Defendants cannot reasonably respond to
them. The Court readily expects that, once L3 is able to ascertain through discovery the
particular dates upon which the Defendants performed particular Jaxon-related acts on L3's time,
it will be able to specifically point the Defendants to the corresponding time sheets.
Accordingly, the Court declines to dismiss the fraud claims.
14. Sherman Act claim
To allege a violation of the Sherman Act, 15 U.S.C. § 1, L3 must allege: (i) a conspiracy
or agreement among two or more independent actors; and (ii) that agreement unreasonably
restrains trade in commerce. TV Communications Network, Inc. v. Turner Network Television,
Inc., 964 F.2d 1022, 1027 (10th Cir. 1992). The Court turns first to the parties’ dispute over
whether the allegations sufficiently demonstrate an unreasonable restraint of trade. Assuming,
for the moment, that L3's allegations of collusion between Jaxon and Serco demonstrate a
restraint of trade, the question becomes whether that restraint is “unreasonable.”
There are some restraints of trade that have such pernicious effects or that so lack
redeeming value that they are considered per se unreasonable; all other restraints are subject to a
more complex “rule of reason.” Northwest Wholesale Stationers, Inc. v. Pacific Stationery and
Printing Co., 472 U.S. 284, 289-90 (1985). L3 contends here that the restraint it alleges is a
form of “bid rigging,” widely understood to constitute a per se violation. U.S. v. Reicher, 983
F.2d 168, 170 (10th Cir. 1992). But this Court finds that the allegations here do not fall within
the definition of “bid rigging.” The crux of L3's Sherman Act claim is that Jaxon and Serco
agreed that Serco would purposefully direct contracts to Jaxon, bypassing a competitive bidding

32

process in which L3 either would have participated but was not notified of the opportunity to
bid, or indeed did participate in and submitted the lowest-cost bid but was not selected. “Bid
rigging” arises from “an agreement between competitors pursuant to which contract offers are to
be submitted to or withheld form a third party.” U.S. v. Reicher, 983 F.2d 168, 170 (10th Cir.
1992) (emphasis added). Thus, a scheme by which L3 and Jaxon jointly agreed as to how they
would bid for Serco contracts, thus depriving Serco of the benefit of competitive bidding, would
constitute “bid rigging,” but that is not what is alleged here.
The Court has carefully reviewed a wealth of antitrust cases for a more factually-similar
paradigm, and finds one described as “sham bidding” in Sitkin Smelting & Refining Co. v. FMC
Corp., 575 F.2d 440 (3d Cir. 1978). There, the defendant announced that it would accept bids
for a contract to demolish its building and recover its scrap metal. Two bidders, plaintiff Sitkin
and an entity called Krentzman, submitted bids. The plaintiff contends that the defendant agreed
with Krentzman to share Sitkin’s bid, to allow Krentzman to modify its bid accordingly, and to
ultimately accept Krentzman’s higher bid for the project. The Third Circuit struggled to locate a
label that could be applied to such allegations. It rejected the characterization of the events as
“price fixing,” noting that price fixing “is an agreement to fix the price to be charged in
transactions with third parties, not between the contracting parties themselves.” Id. at 446. It
also rejected the notion that the agreement constituted a form of “vertical price fixing,” noting
that in such cases, “the prices fixed are resale prices charged to third parties and not the price
between the conspiring parties themselves.” Id. It considered whether the agreement was a
“concerted refusal to deal” or “group boycott,” but noted that such labels “involve broad
combinations and rather pervasive refusals to deal by a group of suppliers covering many

33

transactions over an extended period of time.” Id.
Ultimately accepting the plaintiff’s label of the conduct as “sham bidding,” the court then
turned to the question of whether such conduct constituted an unreasonable restraint of trade.
Finding that it did not, the court focused on the fact that “all but one of the bidders were destined
to come up ‘empty-handed’ with or without the sham bidding,” and the fact that the defendant
elected to favor Krentzman over the plaintiff was of no antitrust significance, “so long as its
conduct has no market control or monopolistic purpose or effect.” Id. at 447. The court noted
that “there was no evidence of an intent [by the defendant and Kretnzman] to affect the quantity
or quality of any goods or services,” nor any evidence that the agreement influenced “prices,
quantity, or quality in the scrap metal market.” Id. It acknowledged that sham bidding might be
“reprehensible under some moral or ethical standard or even illegal under some other law,” but
that the Sherman Act “is neither a lowest-responsible-bidder statute nor a panacea for all
business affronts which seem to fit nowhere else.” Id. at 447-48.
A similar analysis applies here. L3's allegations simply describe an agreement between a
purchaser and one of its suppliers to favor that supplier’s bids over those of disfavored
competitors. L3 does not allege that Jaxon was attempting via the agreement to manipulate the
market price for the testing services; rather, it was convincing Serco to award contracts to Jaxon
regardless of the fact that bidders like L3 (in those instances in which L3 submitted a bid) were
already offering to provide the services at lower prices. In essence, Jaxon convinced Serco to act
against its own best interests and select a higher-priced bidder, just as the defendant in Sitkin
chose to ignore Sitkin’s lower-priced bid and instead agreed to purchase the same service from
the higher-priced Krentzman. As Sitkin notes, the Sherman Act is not a guarantee that contracts

34

will go to the lowest-priced responsible bidder. (Whether L3 has a remedy available to it under
other statutes that might apply to bidding on federally-related contracts is a question this Court
does not consider.)
In any event, L3 has elected in both the Amended Complaint and in its response to argue
that the alleged practices violate the Sherman Act because they constitute per se unlawful “bid
rigging.” Because the Court finds that the allegations fail to amount to bid rigging, the Amended
Complaint fails to state a Sherman Act claim.
Although the Court need not address the Sherman Act claim further, it also notes that the
Defendants are correct in challenging the sufficiency of L3's allegations of “antitrust injury.”
To give rise to a cognizable antitrust claim, the injury claimed by the plaintiff must be an injury
that poses an adverse effect to competition or consumers, not simply an injury to a competitor;
that is, it must be an injury that flows from the “competition-reducing aspect or effect” of the
Defendants’ behavior. Elliott Industries, Ltd. Partnership v. BP America Production Co., 407
F.3d 1091, 1124-25 (10th Cir. 2005). Thus, the existence of an actionable injury must be
examined “from the consumer’s viewpoint,” to ascertain whether the alleged conduct “affected
the prices, quantity or quality of goods or services, not just [the plaintiff’s] own welfare.” Vesom
v. Atchison Hosp. Assn., 279 Fed.Appx. 624, 638 (10th Cir. 2008). In short, the injury to the
plaintiff and the injury to competition must be one and the same.
Here, the Amended Complaint alleges that the antitrust injury – the harm suffered by the
“general public” is that “it resulted in the United States government having to pay more for
services and product with regard to these Task Orders than otherwise would have occurred.”
Amended Complaint, ¶ 408. But the alleged injury L3 claims it suffered itself is different, as the

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conduct “resulted in Jaxon obtaining business opportunities, including but not limited to these
Task Orders instead of L-3.” Id., ¶ 407. In short, L3 alleges that its own injury was an injury to
it as a competitor (it did not receive orders that it was entitled to), but that injury is different
from the alleged injury to consumers (that they paid higher prices for services). Because L3's
own claimed injury is not the same as the alleged antitrust injury, this too requires dismissal of
the Sherman Act claim.
15. Unfair competition claim
Finally, the Defendants challenge several aspects of L3's common-law unfair competition
claim. They begin by noting that the statutory citation accompanying this claim (allowing civil
suit by owner to recover stolen property) is apparently unconnected with the allegations in the
body of the claim and in L3's defense of the claim in its response, and thus, the Court disregards
that statutory citation.
The Defendants contend that this claim is preempted by the Colorado Uniform Trade
Secrets Act, and L3 responds by arguing that the claim seeks relief for those instances in which
the Defendants profited from misappropriating L3's non-trade secret, but still proprietary,
business forms and information. Although Colorado appears to contemplate the tort of unfair
competition applying in such circumstances, see Powell, 948 F.Supp. at 1476, it appears to this
Court that L3's unfair competition claim is effectively subsumed within its unjust enrichment
claim. Both claims essentially recite that the Defendants obtained a benefit by availing
themselves of proprietary (but non-trade secret) information belonging to L3. The Amended
Complaint offers no clear distinction between the two types of claims, and L3 has not offered
any articulation of one claim that would squarely place it outside the scope of the other. Because

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the Court has already found that the unjust enrichment claim may proceed, it dismisses the unfair
competition claim as redundant.

16. Request for a more definite statement
The Court summarily rejects the Defendants’ request that L3 be required to provide a
more definite statement of its claims. Without necessarily endorsing the quality of the pleading
in the Amended Complaint, the Court finds that there are sufficient allegations contained therein
to permit the Defendants to frame a meaningful response. Moreover, it is fully evident to the
Court that the Defendants will avail themselves (and indeed, have already) of the full range of
discovery available to them to assess and delimit the scope of L3's claims.
B. Objections
Finally, the Court turns to the Defendants’ Objections to the Magistrate Judge’s ruling
that L3 may designate Mr. Crain as its Technical Advisor, and that Mr. Crain can be given
access to “attorneys’ eyes only” material.
Rulings on non-dispositive issues by a Magistrate Judge are reviewed by this Court
pursuant to Fed. R. Civ. P. 72(a), and will be reversed only if they are “clearly erroneous or
contrary to law.” 28 U.S.C. § 636(b)(1)(A); Hutchinson v. Pfeil, 105 F.3d 562, 566 (10th Cir.
1997); Ariza v. U.S. West Communications, Inc., 167 F.R.D. 131, 133 (D. Colo. 1996).
Accordingly, the Defendants’ Objections will be overruled unless the Court finds that the
Magistrate Judge abused her discretion or, if after viewing the record as a whole, the Court is left
with a "definite and firm conviction that a mistake has been made." Ariza, 167 F.R.D. at 133,
citing Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir.1988).

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The Court begins by observing that the question of who L3 may designate as a Technical
Advisor and what materials that person should be given access to are matters that are not
governed by any strict rule or controlling precedent, but rather fall within the general
requirement that the Court exercise its sound discretion in deciding what safeguards should
apply to discovery concerning a party’s trade secret information. Centurion Indust., Inc. v.
Warren Steurer and Assocs., 665 F.2d 323, 326 (10th Cir. 1981), citing Fed. R. Civ. P.
26(c)(1)(G) (court may direct that trade secrets or confidential information “not be revealed or be
revealed only in a specified way”). This adds an additional layer of discretion to be exercised
by the Magistrate Judge in this case, making it even more unlikely that this Court will find that
she abused the considerable discretion afforded her with regard to the issues.
The Court has reviewed the parties written submissions with regard to the Motion for
Protective Order, the materials that they have submitted in conjunction with the Objections
herein, and the transcript of the July 18, 2011 hearing (# 75-1) and the Magistrate Judge’s oral
ruling. On that record, the Court cannot say that the Magistrate Judge abused her discretion in
permitting L3 to designate Mr. Crain as Technical Advisor, nor in permitting Mr. Crain to have
access to a portion of Jaxon’s pricing information.
The Defendants argue that L3 did not carry its burden of showing that it was necessary to
identify Mr. Crain, as opposed to a disinterested outsider, as its Technical Advisor. Assuming,
without necessarily finding, that this is a correct statement of the relevant standard, the Court
observes that the record before the Magistrate Judge on this question was contested. The
Defendants proffered the affidavit of Randall White, who stated that “Numerous individuals in
industry, academia, and within the government possess equal or superior knowledge of HEMP

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testing technology to that of Mr. Crain,” or that “any qualified electrical engineer could
understand the technology at issue in this case and advise counsel.” By contrast, L3 proffered
the affidavit of Mr. Crain himself, who stated that “there are very few HEMP testing technology
experts with both theoretical and substantial field experience in the United States, nearly all of
whom are in government positions or employed by L-3, Jaxon [or one of their competitors].” He
also rejected Mr. White’s contention that “any electrical engineer” could provide technical
advice, stating that “only extensive hands-on experience . . . can provide true expertise in the
field [and] someone without this experience would require lengthy and expensive training . . . to
understand and assist with the technical issues” in the case.
The Magistrate Judge elected to resolve this dispute by generally siding with Mr. Crain.
Among other things, she observed that he “is probably preeminent in this field, . . . and in fact is
the co-inventor on the patents in suit, so obviously knows a lot about it. . . He knows things
about what was going on [at L3 when the Defendants left] that no one else has, and he’s a fact
witness with a lot of expertise woven in.” As a result, she concluded that “he is essential to the
ability of the plaintiff to prove their case.” Having reviewed the Defendants’ Objections, the
Court does not understand the Defendant to dispute any of these factual findings – that Mr. Cain
is preeminent in the field and a co-inventor of the technology, nor that he was present at L3 with
knowledge of its operations as of the time the Defendants left. Thus, the Court cannot say that
the Magistrate Judge’s factual findings were clearly erroneous. Nor can the Court say that the
decision that Mr. Crain, given his unique possession of both expertise and factual knowledge, is
“necessary” is contrary to law. The Magistrate Judge expressly noted her concern that “there is a
high risk of harm” to Jaxon from allowing Mr. Crain to serve in this capacity, but she

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acknowledged that various restrictions would bus sufficient to ameliorate those risks. The
Defendants have pointed the Court to no law that would suggest that Mr. Crain would not be
considered necessary under such circumstances.
The Court then turns to the question of whether the Magistrate Judge abused her
discretion in granting Mr. Crain access to Jaxon’s pre-suit (but not post-suit) pricing information.
The Magistrate Judge heard extensive argument from both sides on this issue and concluded that
pricing information “is so intertwined with what they’re looking at that I think they need Mr.
Crain to be able to see all of that, because in order to evaluate a proposal, at least in their minds,
to see if there is something the believe is stolen, they have to see the whole package.” This is
consistent with L3's argument, which the Magistrate Judge apparently credited, such that the
Court cannot say that her finding that technical and pricing data were “intertwined” is clearly
erroneous. Nor have the Defendants pointed the Court to any law that would direct that, based
on the Magistrate Judge’s findings, Mr. Crain should be prohibited from having access to the
pricing information. The Magistrate Judge clearly took into consideration the risk of harm to
Jaxon that could result from Mr. Crain having unrestricted access, and crafted a ruling that gave
Mr. Crain access to only that information that was necessary to his function, exposing no more
of Jaxon’s pricing and financial information than was necessary. Under these circumstances, the
Court cannot say that this ruling was contrary to law.
CONCLUSION
For the foregoing reasons, the Defendants’ Motion to Dismiss (# 47) is GRANTED IN
PART, insofar as the Court dismisses the RICO/COCCA claims in their entirety; the Lanham
Act claim as against Defendants Charles Rettig, Scott White, James Youngman, Jerry Lubell,

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Kelly Rice, and John McClure; the tortious interference with prospective economic advantage
claim against all Defendants except Jaxon, Randall White, and Susan Rettig; and the Sherman
Act claim in its entirety, each pursuant to Fed. R. Civ. P. 12(b)(6); and the common-law unfair
competition claim as redundant; and DENIED IN PART in all other respects. The Defendants’
Objections (# 83) are OVERRULED and the Court AFFIRMS the Magistrate Judge’s July 18,
2011 Minute Order (# 70) granting the Plaintiff’s Motion for Protective Order.
Dated this 26th day of March, 2012
BY THE COURT:

Marcia S. Krieger
United States District Judge

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