Select Timber Products LLC et al v. Resch et al
Opinion and Order: Defendants' motion to dismiss 30 is DENIED with regard to Plaintiffs misappropriation of trade secrets claims and IIER claim. The motion is GRANTED with regard to Plaintiffs' conversion claim. IT IS SO ORDERED. Signed on 8/27/2017 by Judge Marco A. Hernandez. (ecp)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
SELECT TIMBER PRODUCTS LLC,
FINISH INNOVATIONS LLC,
BRET MORGAN, MATHEW MORGAN,
AND JASON K. SCARLETT,
STEVE F. RESCH, JR., TIMOTHY CONYARD,
AND CEDAR DIRECT MINNESOTA LLC
1 – OPINION & ORDER
OPINION & ORDER
Tyler J. Volm
Barran Liebman LLP
601 SW Second Avenue, Suite 2300
Portland, OR 97204
Attorneys for Plaintiffs
David H. Madden
9600 SW Oak Street, Suite 500
Tigard, OR 97223
Attorneys for Defendants
HERNÁNDEZ, District Judge:
This case arises from Defendants’ alleged misappropriation of Plaintiffs’ trade secrets.
Plaintiffs claim that Defendants violated the federal Defend Trade Secrets Act (“DTSA”) and the
Oregon Trade Secrets Act (“OTSA”) by misappropriating their proprietary process for producing
specialized wood products (“Confidential Process”) as well as other trade secrets including
pricing information, customer lists, and information about customer and employee relationships
(“Trade Secret Information”). Plaintiffs also allege, in relevant part, conversion and intentional
interference with their economic relationships (“IIER”) claims. Defendants Timothy Conyard
and Cedar Direct Minnesota LLC (“CDM”) move to dismiss the claims identified above. The
Court denies Defendants’ motion with respect to Plaintiffs’ misappropriation and IIER claims.
Defendants’ motion regarding Plaintiffs’ conversion claim is granted because that claim is
superseded by OTSA.
Plaintiff Select Timber Products LLC (“STP”) was comprised of four equal membermanagers: Plaintiffs Bret Morgan, Mathew Morgan, and Jason Scarlett, as well as Defendant
2 – OPINION & ORDER
Steve Resch. Compl. ¶ 15, ECF 1. STP uses its Confidential Process to produce distressed and
aged-looking wood products for use in design, construction, and building trades. Id. at ¶ 13.
Plaintiffs’ Confidential Process includes a proprietary wood burning machine that Bret Morgan
designed. Id. at ¶ 18. The Morgans, who are also member-managers of Plaintiff Finish
Innovations LLC, licensed use of the Confidential Process to STP. Id. at ¶¶ 10–11. All four STP
owners signed a licensing agreement with Finish Innovations. Id. The license prohibits STP
members from using the Confidential Process outside the scope of the agreement. Id. Bret
Morgan then instructed STP employees Dwayne Orr and Spencer Hardy to duplicate his wood
burning machine for STP. Id. Hardy also signed a non-compete and nondisclosure agreement,
prohibiting disclosure of the Confidential Process. Compl. Ex. C, at 1. Resch signed Hardy’s
agreement as a witness. Id. at 9.
Plaintiffs allege that Resch began stealing STP’s trade secrets—including the
Confidential Process—for Conyard and CDM in 2016. Compl. at ¶ 23. CDM is a competitor in
the aged-looking wood industry and Conyard is CDM’s President. Id. at ¶¶ 7–8. Resch asked Orr
to construct a wood burning machine for CDM, similar to the machine designed by Morgan. Id.
at ¶¶ 23–24. Orr shipped the wood burning machine to CDM on January 26, 2017. Id. Next,
Resch convinced Hardy to visit CDM and demonstrate how to use the machine to recreate
Plaintiffs’ Confidential Process. Id. at ¶ 25. CDM or Conyard paid Hardy $10,000 to fly to
Minnesota and teach them the Confidential Process. Id. Plaintiffs allege that Conyard and CDM
conspired with Resch to misappropriate STP’s trade secrets, as well as to interfere with
Plaintiffs’ economic relationships with current and prospective customers. Id. at ¶¶ 28–31.
Plaintiffs also allege that CDM is “performing virtually the same wood aging and distressing
process by using Plaintiffs’ Trade Secret Information.” Id. at ¶ 42.
3 – OPINION & ORDER
Plaintiffs filed a motion for a temporary restraining order (“TRO”) concurrently with
their Complaint. See TRO, ECF 4. The Court granted the TRO, finding that Plaintiffs had
satisfied the four Winters factors, which include demonstrating “a strong likelihood of success on
the merits.” NRDC v. Winter, 502 F.3d 859, 862 (9th Cir. 2007). Moreover, Plaintiffs have
resolved their claims against Resch and only Conyard and CDM remain as defendants in this
case. Now, before the Court is Conyard and CDM’s motion to dismiss. See Mot. to Dismiss,
A motion to dismiss for failure to state a claim may be granted only where there is no
cognizable legal theory to support the claim or where the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs.,
Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). Courts must accept all material facts alleged in the
complaint as true and construe them in the light most favorable to the plaintiff. Wilson v.
Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). Courts need not, however, accept
conclusory allegations as truthful. Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir. 1992).
A motion to dismiss under Rule 12(b)(6) will be granted if the plaintiff alleges “grounds”
for “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action[.]” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative
level . . . .” Id. (citations omitted). The complaint must contain “well-pleaded facts” which
“permit the court to infer more than the mere possibility of misconduct[.]”Ashcroft v. Iqbal, 556
4 – OPINION & ORDER
U.S. 662, 679 (2009). To survive a motion to dismiss, the complaint “must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face[,]” meaning
“when the plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. at 678 (internal quotation marks and
Defendants move to dismiss Plaintiffs’ claims for: misappropriation of trade secrets;
IIER, and conversion. With respect to misappropriation, Defendants argue that Plaintiffs have
failed to allege any facts showing that Conyard and CMD knew or should have known that the
Confidential Process and Trade Secret Information that they received were in fact trade secrets.
In other words, Conyard and CDM’s position is that they were unaware of and cannot be liable
for Resch and other STP employees’ misconduct. Regarding Plaintiffs’ IIER claim, Defendants
argue that Plaintiffs fail to allege any specific contractual relationship or to identify any
particular current or prospective customer. Lastly, Defendants argue that Plaintiffs’ conversion
claim is preempted by OTSA because its allegations are based on the same operative facts as the
trade secret misappropriation claims.
Trade Secret Misappropriation
Defendants move to dismiss Plaintiffs’ DTSA and OTSA claims, arguing that Plaintiffs
allege insufficient facts showing CDM and Conyard’s knowledge. As noted above, Plaintiffs
have settled their claims against their former partner Resch. Defendants admit that Plaintiffs
alleged sufficient facts showing that Resch, Orr, and Hardy knew that the wood burning machine
and its operation were trade secrets. According to Defendants, however, Plaintiffs have not
alleged that CDM and Conyard had the same knowledge. Specifically, Defendants argue that the
5 – OPINION & ORDER
allegations that CDM and Conyard “knew or should have known” that they received trade secrets
and “conspired and acted in concert with Defendant Resch” are unsupported by facts. Thus, the
remaining question is whether Plaintiffs pled sufficient facts showing that CDM and Conyard
had the requisite knowledge to violate federal and Oregon law given their position as receivers of
misappropriated trade secrets.
To survive a motion to dismiss a trade secret misappropriation claim, the plaintiff must
allege facts that plausibly support the claim that the defendant “acquired the trade secrets by one
of the improper means listed [under the statute].” AccentCare Home Health of Rogue Valley,
LLC v. Bliss, 2017 U.S. Dist. LEXIS 88125 *12 (D. Or. Apr. 13, 2017) (finding that the
plaintiff’s allegations that the defendants conspired to recruit employees of a competitor and hide
recruitment efforts were sufficient to support a claim of trade secret misappropriation). Federal1
and Oregon law 2 both define trade secret misappropriation as including knowledge of the theft or
improper use. The DTSA provides that to be liable for the theft of trade secrets, the defendant
must have “knowingly” stole or “knowingly” received information that was stolen. 18 U.S.C.
§ 1832(a)(1). Under the OTSA, liability may be imposed where the defendant “knows or has
reason to know that the trade secret was acquired by improper means.” O.R.S. § 646.461(2)(a).
Plaintiffs provide sufficient factual allegations of CDM and Conyard’s knowledge to
support their trade secret misappropriation claims. The following allegations are taken from
“Whoever, with intent to convert a trade secret, that is related to a product or service used in or intended for use in
interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or
knowing that the offense will, injure any owner of that trade secret, knowingly-- (1) steals, or without authorization
appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information… (3)
receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or
converted without authorization…” 18 U.S.C. § 1832.
“Misappropriation” means: (a) Acquisition of a trade secret of another by a person who knows or has reason to
know that the trade secret was acquired by improper means; (b) Disclosure or use of a trade secret of another
without express or implied consent by a person who used improper means to acquire knowledge of the trade
secret… or (d) Disclosure or use of a trade secret of another without express or implied consent by a person, who at
the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was: (A) Derived
from or through a person who had utilized improper means to acquire it…” O.R.S. § 646.461.
6 – OPINION & ORDER
Plaintiffs’ Complaint. STP and CDM are direct competitors in a niche market. Compl. ¶¶ 13, 18.
The Confidential Process—in particular Bret Morgan’s wood burning machine—gave STP a
considerable advantage relative to other producers. Id. at ¶ 18.The design and operation of the
machine was “a key element of STP’s Trade Secret Information.” Id. Resch and CDM
communicated about the machine, and Resch insisted that Orr build one for CDM. Id. at ¶¶ 23–
24. Conyard, as the agent of CMD, paid Orr to build the machine. Id. at ¶ 24. Then, CDM or
Conyard paid Hardy $10,000 to fly to Minnesota and teach CDM how to use the machine to
duplicate STP’s Confidential Process. Id. at ¶ 25. CDM and Conyard “knowingly received the
Trade Secret Information from Spencer Hardy while he was bound by a nondisclosure
agreement[.]” Id. at ¶ 40. Additionally, Plaintiffs allege that Defendants conspired with Resch to
acquire STP’s Trade Secret Information, including its customer lists and other information about
STP’s relationships with its employees and customers. Id. at ¶¶ 31, 37.
When construing these allegations in the light most favorable to Plaintiffs, it is plausible
that CDM and Conyard knew or had reason to know that the Confidential Process and Trade
Secret Information they received from Resch, Orr, and Hardy were trade secrets. Plaintiffs
allegations that CDM and Conyard conspired with Resch, paid Orr to build the wood burning
machine, and paid Hardy to teach them how to use it are sufficient to infer that Defendants’
Next, Defendant moves to dismiss Plaintiffs’ IIER claim for failure to identify any
contract or economic relationship with a particular current or prospective customer. The
elements of an IIER claim include:
(1) the existence of a professional or business relationship (which
could include, e.g., a contract or a prospective economic
7 – OPINION & ORDER
advantage), (2) intentional interference with that relationship, (3)
by a third party, (4) accomplished through improper means or for
an improper purpose, (5) a causal effect between the interference
and damage to the economic relationship, and (6) damages.
Cron v. Zimmer, 255 Or. App. 114, 125, 296 P.3d 567, 575 (2013) (quoting McGanty v.
Staudenraus, 321 Or. 532, 535, 901 P.2d 841, 844 (1995)). IIER applies to current contractual
relationships as well as to business relationships and prospects. See Aylett v. Universal Frozen
Foods Co., 124 Or. App. 146, 152–53, 861 P.2d 375, 379 (1993) (allowing potato growers to
bring an IIER claim against the defendant buyer for interfering with the plaintiffs’ prospective
economic relationship with another buyer).
Plaintiffs have alleged a plausible IIER claim. With regard to the first element, Plaintiffs
identify contractual relationships with “its current customers and prospective contractual
relationships with prospective customers.” Compl. ¶ 71. Plaintiffs need not provide detailed
facts. Facts which support a plausible claim for relief will suffice. Iqbal, 556 U.S. at 678;
Twombly, 550 U.S. at 555. Plaintiffs allege that Conyard and CDM are using “virtually the
same” wood burning process as the Confidential Process in order to “directly compete with STP”
in a niche market. Compl. ¶¶ 13, 18, 42. Plaintiffs also allege that Conyard and CDM are in
possession of their Trade Secret Information which includes pricing information, customer lists,
and information about their relationships with their customers. Id. at ¶¶ 2, 3, 26, 73–74.
Accepting that the facts alleged in the Complaint are true, and construing them in the
light most favorable to Plaintiffs, the Court concludes that the IIER claim is sufficiently alleged.
STP and CDM are direct competitors. CDM is allegedly in possession of STP’s customer list.
STP alleges that CDM is using its Confidential Process to produce identical products that it is
marketing to STP’s customers. The Court is persuaded that these allegations are sufficient for
Plaintiff’s IIER claim to survive Defendants’ motion to dismiss.
8 – OPINION & ORDER
Lastly, Defendants move to dismiss Plaintiffs’ conversion claim on the ground that it is
superseded by OTSA. Plaintiffs did not respond to Defendants motion to dismiss the conversion
claim. OTSA supersedes “conflicting, restitution or other law of Oregon providing civil remedies
for misappropriation of a trade secret.” O.R.S. § 646.473(1). Other civil remedies, however, are
not superseded where they “are not based upon misappropriation of a trade secret.” ORS
§ 646.473(2)(b). Defendant argues that Plaintiffs’ conversion claim is preempted by their trade
secret misappropriation claims because the two share the same operative facts.
Oregon courts have not interpreted [the] language [of
§ 646.473(2)(b)] or addressed the extent to which the Act preempts
civil remedies. However, a number of courts in other states have
extended the preemptive effect of the same language to claims that
are based on the same operative facts as a claim for trade secret
misappropriation under the Act. Where the essence of the claim
relates primarily to the alleged misappropriation of a trade secret,
the claim is displaced by the preemptive language of the Act.
Precision Automation, Inc. v. Tech. Servs., Inc., No. 07-CV-707-AS, 2007 WL 4480736, at *2
(D. Or. Dec. 14, 2007) (quoting Acrymed, Inc. v. Convatec, 317 F.Supp.2d 1204, 1217 (D. Or.
2004)). Other courts from this District have interpreted OTSA to supersede conversion claims
based on the same conduct. See Kante v. Nike, Inc., No. CV 07-1407-HU, 2008 WL 5246090, *4
(D. Or. Dec. 16, 2008) (holding that the plaintiff’s conversion claim was superseded because it
was based on the defendant’s alleged misappropriation of proprietary material); K.F. Jacobsen &
Co. v. Gaylor, 947 F. Supp. 2d 1120, 1127 (D. Or. 2013) (generally recognizing that conversion
claims based on alleged misappropriation of trade secrets are preempted).
In this case, Plaintiffs’ conversion claim relates entirely to the alleged misappropriation
of trade secrets. Plaintiffs allege that “[w]ithout authorization, Defendants each exercised control
over Plaintiffs’ Confidential Process and Trade Secret Information, and used such property to
9 – OPINION & ORDER
Plaintiffs’ detriment in the establishment and continued operation of CDM.” Compl. ¶ 77.
Plaintiffs further allege that Defendants’ conduct “interfered with Plaintiffs’ rights to control the
use of its proprietary information and trade secrets.” Id. at ¶ 78.
In K.F. Jacobsen, the court denied the defendant’s motion to dismiss the conversion
claim, construing the claim to possibly include information that did not qualify as trade secrets.
947 F. Supp. 2d at 1127. Here, by contrast, Plaintiffs’ conversion claim is based solely on
Defendants’ alleged misappropriation of the Confidential Process and Trade Secret Information.
In their misappropriation claims, Plaintiffs state that their Confidential Process and Trade Secret
Information constitute “trade secrets” under both the DTSA and OTSA. Compl. ¶¶ 33, 52, 54.
Thus, the essence of the Conversion Claim relates directly to Plaintiff’s misappropriation of trade
secrets claims. Accordingly, Plaintiffs’ conversion claim is preempted under O.R.S.
Defendants’ motion to dismiss is DENIED with regard to Plaintiffs’ misappropriation of
trade secrets claims and IIER claim. The motion is GRANTED with regard to Plaintiffs’
IT IS SO ORDERED.
day of August, 2017.
MARCO A. HERNÁNDEZ
United States District Judge
10 – OPINION & ORDER
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