Illumination Management Solutions, Inc. v. Ruud Lighting, Inc.
Filing
351
DECISION AND ORDER in Case No. 10-C-1120 signed by Judge Rudolph T. Randa on 12/6/2012 ordered to be filed in this action (See Order for Details). (cc: all counsel)(cb)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
ILLUMINATION MANAGEMENT
SOLUTIONS, INC.,
Plaintiff,
-vs-
Case No. 10-C-1120
ALAN RUUD, CHRISTOPHER RUUD,
and RUUD LIGHTING,
Defendants.
DECISION AND ORDER
This matter is before the Court on the motion filed by the Plaintiff, Illumination
Management Solutions, Inc. (“IMS”), seeking reconsideration of this Court’s September 14,
2012, Decision and Order pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, or
in the alternative for leave to replead, or in the alternative for certification of the matter for
interlocutory appeal.
The Defendants oppose the relief sought by the motion. In a footnote, they
renew their request to consolidate the conspiracy claim in this action with the conspiracy
claim in Case No. 11-C-34 (E.D. Wis.) and to dismiss that claim pursuant to this Court’s
prior preemption ruling. (Defs. Resp. IMS Mot. Recons., Mot. Amend, & Alternatively Mot.
Certify Interlocutory Order, 2 n.3.) (ECF No. 142.) The request for consolidation is denied
because the Defendants have not filed a motion as required by Rule 7(b) of the Federal Rules
of Civil Procedure, nor have they provided a reason that persuades this Court to change its
prior denial of their consolidation motion.
Reconsideration
Although IMS’s motion for reconsideration is phrased broadly, it requests
reinstatement of its claims for breach of fiduciary duty, civil conspiracy, aiding and abetting
a breach of fiduciary duty, and negligent breach of the duty of care. The Court dismissed
those claims as preempted by California’s Uniform Trade Secret Act (“CUTSA”), Cal. Civ.
Code § 3426, the basis for IMS’s sixth cause of action.
The second sentence of Rule 54(b), states that:
any order or other decision, however designated, that
adjudicates fewer than all the claims or the rights and liabilities
of fewer than all the parties does not end the action as to any of
the claims or parties and may be revised at any time before the
entry of a judgment adjudicating all the claims and all the
parties’ rights and liabilities.
A district court will grant a motion for reconsideration when: (1) the court has patently
misunderstood a party; (2) the court has made a decision outside the adversarial issues
presented to the court by the parties; (3) the court has made an error not of reasoning but of
apprehension; (4) there has been a controlling or significant change in the law since the
submission of the issue to the court; or (5) there has been a controlling or significant change
in the facts since the submission of the issue to the court. Bank of Waunakee v. Rochester
Cheese Sales Inc., 906 F.2d 1185, 1191 (7th Cir. 1990).
Motions for reconsideration serve a limited function: to correct manifest errors
of law or fact or to present newly discovered evidence. Caisse Nationale de Credit Agricole
-2-
v. CBI Indus., Inc., 90 F.3d 1264, 1269 (7th Cir. 1996). “Reconsideration is not an
appropriate forum for rehashing previously rejected arguments or arguing matters that could
have been heard during the pendency of the previous motion.” Id. at 1270.
The substantive legal issues raised by IMS revisit the Court’s preemption
analysis. In part, IMS rehashes its prior arguments, and in part, IMS seeks a new decision
based upon new or revised arguments. The Court’s ruling rests on its deliberation of the
pleadings, the relevant statute, and the applicable California case law. While IMS’s
contentions are not devoid of support, its motion is, in essence, a request that the Court
reverse its prior determinations by accepting the arguments previously advanced by IMS.
IMS also adds contentions that CUTSA cannot preempt a breach of fiduciary
duty because directors could run rampant, freely misusing confidential (but not trade secret)
information with impunity. (IMS Mem. Mot. Recons., Mot. Amend, and Alternatively Mot.
Certify Interlocutory Order (“IMS Mem.”), 5-9.) (ECF No. 137.) IMS also challenges the
legal analysis of the courts that have ruled on CUTSA preemption, urging this Court to “rein
in” the scope of California preemption. (Id. at 14.)
However, reconsideration “is not appropriately used to advance arguments or
theories that could and should have been made before the district court rendered a judgment.”
LB Credit Corp. v. Resolution Trust Corp, 49 F.3d 1263, 1267 (7th Cir. 1995). If IMS
wished to make these arguments, it could have and should have done so in its opposition
brief. To the extent IMS did not, it waived any argument. And, to the extent these
arguments have been made before, IMS is not entitled to a do over.
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Since IMS has not
established that the Court committed a manifest error of law, its motion for reconsideration
is denied.
Amendment of Complaint
IMS also requests permission to file its proposed third amended Complaint.
Courts must freely give leave to amend under Rule 15(a) where interests of justice so require.
McCauley v. City of Chicago, 671 F.3d 611, 628 (7th Cir. 2011) (citing Fed. R. Civ. P. 15(a);
Foman v. Davis, 371 U.S. 178, 181-82 (1962)). The liberal policy toward amending
pleadings, especially in a first effort to amend, should remain in effect even if a district court
elects to enter judgment upon granting a motion to dismiss. See, e.g., Bausch v. Stryker
Corp., 630 F.3d 546, 562 (7th Cir. 2010) (holding that the district court erred by entering
judgment after a Rule 12(b)(6) dismissal where the plaintiff sought to amend complaint to
address perceived mistakes and the proposed amendment to complaint was not futile).
“District courts have broad discretion to deny leave to amend where there is
undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies, undue prejudice
to the defendants, or where the amendment would be futile.” Hukic v. Aurora Loan Servs.,
588 F.3d 420, 432 (7th Cir. 2009) (internal citation omitted).” A district court should deny
a motion for leave to amend if the proposed amendment is futile, as when, for example, the
amended pleading would not survive a motion to dismiss. See, e.g., Arlin-Golf, LLC v. Vill.
of Arlington Heights, 631 F.3d 818, 823 (7th Cir. 2011); London v. RBS Citizens, N.A., 600
F.3d 742, 747 n. 5 (7th Cir. 2010). However, the bottom line is that, while a court may deny
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a motion for leave to file an amended complaint, such denials are disfavored. Bausch, 630
F.3d at 562.
Civil Local Rule 15(b), which addresses amended and supplemental pleadings,
requires that “[a] motion to amend a pleading must state specifically what changes are sought
by the proposed amendments.” IMS states that the changes are meant to “more specifically
describe and highlight the facts that support Defendants’ liability for breach of fiduciary
duty, aiding and abetting breach of fiduciary duty, civil conspiracy, and negligent breach of
the duty of care, and that do not involve the misuse of trade secrets or confidential
information.” (IMS Mem. 22 n.8.)
Although IMS’s proposed Third Amended Complaint does not detail the
differences between it and the current Complaint, the description is sufficient. Comparison
of the two discloses that additional detail and facts are included in the overview section of
the proposed Third Amended Complaint and in the claims for breach of fiduciary duty, civil
conspiracy, aiding and abetting breach of fiduciary duty, and negligent breach of the duty of
care. (See Proposed Third Am. Compl. ¶¶ 1-11, 65(a)-(g).) (ECF No. 136-1.) The amended
claims continue to allege actions that involve the misuse of trade secrets or confidential
information (Id. at ¶¶ 66(a)-(g)).
However, the amended claims explicitly allege actions that do not involve the
misuse of trade secrets or confidential information and are not comprised of the same nucleus
of fact as the CUTSA claim. The alleged actions performed by the Defendants in violation
of their fiduciary duties to IMS aside and apart from the taking or misuse of confidential
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information include: (a) the failure to disclose to IMS their secret plans to compete with it;
(b) misleading IMS regarding product specifications to cause IMS to design products that
would be inferior to Defendants’ planned competing products; (c) entering into one or more
agreements with IMS with no intention to perform; (d) intentionally concealing its intent to
compete with IMS in order to obtain IMS’s assistance in making light bars so that Ruud
Lighting could introduce its line of outdoor lighting products at the 2007 Light Fair trade
show; (e) filing patent applications, and ultimately obtaining patents, that were assigned of
record to Ruud Lighting with the intention of restricting IMS in its development of business
and business opportunities filing of one or more patent applications, and ultimate obtaining
of one or more patents, on subject matter that Alan Ruud developed while he was a Director
of IMS and that was rightfully owned by IMS without assigning any rights that he may have
in such subject matter to IMS; (g) filing of one or more patent applications when the
Defendants knew or should have known that one or more claims of such patent application(s)
were directed to non-trade secret subject matter invented on behalf of IMS or by IMS
personnel such as a parking garage fixture publicly installed in Inglewood, California. (See
Proposed Third Am. Compl. ¶¶ 65(a)-(g).) Thus, under the proposed amended Complaint,
such claims would not be preempted by CUTSA.
Although the Defendants assert that the amended claim for breach of fiduciary
duty is barred by the California statute of limitations, they address only one added allegation
regarding the 2007 Light Fair. Thus, the proposed amended breach of fiduciary duty claim
does not admit all the ingredients of an impenetrable defense.
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See Xechem, Inc. v.
Bristol-Myers Squibb Co., 372 F.3d 899, 901 (7th Cir. 2004).
Having considered the
arguments of the parties and the liberal standard for pleading, the Court grants IMS’s motion
to amend its Complaint and directs that the proposed Third Amended Complaint be filed by
the Clerk of Court.
Certification of Interlocutory Appeal
Section 1292(b) of Title 28 of the United States Code provides for interlocutory
appeals as follows:
When a district judge, in making in a civil action an order not
otherwise appealable under this section, shall be of the opinion
that such order involves a controlling question of law as to
which there is substantial ground for difference of opinion and
that an immediate appeal from the order may materially advance
the ultimate termination of the litigation, he shall so state in
writing in such order.
An interlocutory appeal is available only when: (1) an “appeal presents a question of law; (2)
it is controlling; (3) it is contestable; (4) its resolution will expedite the resolution of the
litigation; and (5) the petition to appeal is filed in the district court within a reasonable
amount of time after entry of the order sought to be appealed.” Boim v. Quranic Literacy
Inst., 291 F.3d 1000, 1007 (7th Cir. 2002). Thereafter, the Court of Appeals has discretion
in permitting an appeal from such an order. See 28 U.S.C. § 1292(b); In re Text Messaging
Antitrust Litig., 630 F.3d 622, 624 (7th Cir. 2010) (stating that the district court must give
permission to allow an interlocutory appeal before the Court of Appeals makes a final
decision about an immediate appeal). The criteria under 1292(b) are “conjunctive, not
disjunctive.” Ahrenholz v. Bd. of Trs. of Univ. of Ill., 219 F.3d 674, 676 (7th Cir. 2000).
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Section 1292(b) “must be used sparingly lest interlocutory review increase the time and
expense required for litigation.” Asher v. Baxter Int'l Inc., 505 F.3d 736, 741 (7th Cir. 2007).
The first statutory criterion under § 1292(b) is that there must be a question of
law. A “question of law” under section 1292(b) must be a “pure” question of law,
“something the court of appeals could decide quickly and cleanly without having to study the
record,” such as “a question of the meaning of a statutory or constitutional provision,
regulation, or common law doctrine . . .” Ahrenholz, 219 F.3d at 676-77. Application of a
legal standard is a question of law. In re Text Messaging Antitrust Litig., 630 F.3d at 626.
The dismissal of the claims at issue does not involve a pure question of law. Instead, it
would require the court of appeals to examine the Complaint and the causes of action alleged
in that Complaint.
The second statutory criterion under § 1292(b) is that the question of law must
be controlling. The cases do not interpret the term literally. Sokaogon Gaming Enter. Corp.
v. Tushie-Montgomery Assocs., Inc., 86 F.3d 656, 659 (7th Cir. 1996). “A question of law
may be deemed ‘controlling’ if its resolution is quite likely to affect the further course of the
litigation, even if not certain to do so.” Id. (citations omitted)). The questions of law
presented are arguably controlling since the Court ruled that IMS may not pursue several
claims in this action because they are preempted by CUTSA. However, by this Decision and
Order, IMS has been allowed to amend its Complaint which permits it to proceed with its
breach of fiduciary duty, civil conspiracy, aiding and abetting breach of fiduciary duty, and
negligent breach of the duty of care claims.
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The third statutory criterion under § 1292(b) is that the question of law must
be contestable; i.e., that “substantial ground[s] for a difference of opinion [on the issue
exist].” The briefing of the motion to dismiss as well as the motion for reconsideration
clearly support a finding that the issues are contestable. However, the Court’s September 14,
2012, ruling is consistent with the majority of California courts that have ruled on the issue.
The fourth statutory criterion under § 1292(b), is its resolution will expedite
the resolution of the litigation. It is on this criterion that IMS’s proposed interlocutory appeal
stumbles. This issue is a matter of California law and the role of courts applying substantive
law in diversity actions to apply the law as would the highest court of that state, giving great
weight to the determinations of intermediate appellate courts. See Pisciotta v. Old Nat’l
Bancorp, 499 F.3d 629, 634-35 (7th Cir. 2007).
Any ruling of the Seventh Circuit
interpreting California law would be trumped by a subsequent definitive decision of a
California court on the scope of CUTSA preemption. Therefore, the interlocutory appeal
would not expedite the resolution of this litigation.
Other Matters
At this juncture of the proceedings, the Court will conduct a telephone status
conference on January 10, 2013, at 2:30 p.m. (CST) to discuss whether a date for filing
dispositive motions is needed and to set dates for the final pretrial conference and the twoweek jury trial in this matter. The Court will initiate the call.
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NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY
ORDERED THAT:
IMS’s motion for reconsideration, or in the alternative to amend, or in the
alternative to certify this matter for an interlocutory appeal (ECF No. 136) is GRANTED
with respect to amendment of the Complaint and DENIED in all other respects;
The Clerk of Court is directed to file IMS’s proposed Third Amended
Complaint (ECF No. 136-1);
The parties MUST PARTICIPATE in a telephone status conference on
January 10, 2013, at 2:30 p.m. (CST); and
The Clerk of Court is DIRECTED to file a copy of this Decision and Order
in the ‘34 action.
Dated at Milwaukee, Wisconsin, this 6th day of December, 2012.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge
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