United States District Court, D. Arizona
Tucson Embedded Systems Incorporated, Plaintiff/Counter-Defendant,
Turbine Powered Technology LLC, Defendant/Counter-Plaintiff.
BRUCE G. MacDONALD, Magistrate Judge.
Currently pending before the Court is Plaintiff/Counterdefendant Tucson Embedded Systems, Inc.'s Motion for Partial Summary Judgment Re Arizona Trade Secrets Claim [Counterclaim Count Four] (Doc. 89). Defendant/Counterplaintiff Turbine Powered Technology, LLC filed its Response (Doc. 95) and Supplemental Response (Doc. 117). Plaintiff/Counterdefendant has replied and supplemented as well (Docs. 101 & 123). On March 24, 2016, oral argument was held. Minute Entry 3/24/2016 (Doc. 128).
I. FACTUAL BACKGROUND
A. The Initial Project
In the fall of 2012, Turbine Powered Technology, LLC ("Turbine" or "TPT") began to develop the concept of building turbine driven generators that would run on field gas for placement at oil and gas wells in remote locations. First Amended Counterclaim ("Counterclaim") (Doc. 15) at ¶ 5; see also Def.'s Controverting and Separate Statement of Facts ("Controverting SSOF") (Doc. 96), McIntyre Decl. (Exh. "A") (Doc. 108) at ¶¶ 4-6 & Grow Decl. (Exh. "E") (Doc. 96-5) at ¶ 7. Tucson Embedded Systems, Inc. ("TES") was tasked with building the engine control systems to control the turbine engines, called Industrial Digital Engine Controllers ("IDECs"). Counterclaim (Doc. 15) at ¶¶ 7, 9. Ted McIntyre is the Chief Executive Officer ("CEO") and Manger of Turbine. McIntyre Aff. 7/25/2014 (Doc. 53-3) at ¶ 1.
On October 3, 2013, TES sent Turbine a proposal dated October 4, 2013. Id. at ¶ 24. This was not the first proposal exchanged by the parties. Id. at ¶¶ 6-19. Mr. McIntyre identified the October 4, 2013 Proposal as TPT EMAILS # 000155-159 (Terms and Conditions attachment excluded). Id. at ¶ 24; see also Pl.'s Separate Statement of Facts ("SOF") (Doc. 90), TPT EMAILS # 000155-159 (Terms and Conditions attachment excluded) (Exh. "B"). The October 4, 2013 Proposal reflects a total cost of $1, 139, 600.00; however, the addition is incorrect and the actual total is $1, 117, 600.00. McIntyre Aff. 7/25/2014 (Doc. 53-3) at ¶ 26; see also Pl.'s SOF (Doc. 90), Exh. "B" at 2. Turbine accepted the payment and delivery schedule set forth in the October 4, 2013 proposal, but did not accept the Terms and Conditions or otherwise alter its previous express rejection of the same. McIntyre Aff. 7/25/2014 (Doc. 53-3) at ¶¶ 27-28.
TES delivered the IDEC Units 13-24 to TPT. Pl.'s SOF (Doc. 90), Turbine's Response to Pl.'s RFA (Exh. "C") at ¶ 8. Turbine asserts that TES delivered the number of IDEC Units described in the October 4, 2013 Proposal, but further asserts that the IDECs did not function as Turbine needed. McIntyre Decl. 6/1/2015 (Doc. 82-1) at ¶ 27. TES accepted the IDEC Units described in the October 4, 2013 Proposal. Pl.'s SOF (Doc. 90), Exh. "C" at ¶ 9. Turbine asserts that it has paid $740, 894.82 of the $1, 117, 600.00 agreed to by the parties. Order 3/11/2015 (Doc. 67) at 10:9-10.
B. The Instant Litigation
On February 26, 2014, TES filed this lawsuit alleging, inter alia, a breach of contract based on Turbine's alleged failure to pay amounts owed for the IDECs. See Compl. and Jury Trial Demand (Doc. 1). On March 21, 2014, Turbine filed its counterclaim alleging, inter alia, that TES misappropriated Turbine's trade secrets. See Answer and Counterclaim (Doc. 11).
C. Turbine's Alleged Trade Secrets
In its First Amended Counterclaim, Turbine alleges that its trade secrets include:
(a) "... the use of the T-53 as a driver for a power generator, including obtaining access to the Turbine Power's dyno, equipment, manufacturing and development facilities and Turbine Power's engineers and technicians[;]" and
(b) "... the timing temperatures, flow rates, horsepower settings, and pressures at which the T-53 optimally operated, all of which TES learned from Turbine Power and its engines, equipment and people."
Turbine's First Amended Counterclaim (Doc. 15) at ¶¶ 50-51. Turbine "affirmatively alleges that its trade secrets are a compilation consisting of the parameters and settings, including timing, temperatures, flow rates, horsepower settings, pressures, warning protocols, and shutdown protocols, necessary to make a T-53 engine run on field gas drive a one megawatt (1 mw) generator in oil and gas industry applications in remote locations where personnel cannot be constantly on sight monitoring it to prevent catastrophic failures." Def.'s Controverting SSOF (Doc. 96) at ¶ 13; see also McIntyre Decl. 9/25/2015 (Doc. 108) at ¶ 11. TES propounded non-uniform interrogatories upon Turbine, one of which sought Turbine to "[d]escribe in detail each and every trade secret TES allegedly misappropriated to support TPT's claims in Count Four of TPT's First Amended Counterclaim." Pl.'s SOF (Doc. 90), Turbine Powered Technology, LLC's Responses to Plaintiff/Counterdefendant's Non-Uniform Interrogatories (Exh. "D") at 6. TPT's response was as follows:
TPT objects to the Interrogatory in that it asks TPT to reveal proprietary, trade secret information without adequate protective measures. Namely, TPT and TES have yet to agree on a form of protective order. Subject to and without waiving the aforementioned objections, TPT responds as follows:
TPT did have trade secrets in the information that was conveyed to TES. Ted McIntyre, unlike anyone else, possessed specific knowledge about controlling T-53 turbine engines for industrial uses. The Honeywell manual TES refers to is a FLIGHT engine manual, not an industrial engine use manual. The specialized knowledge is knowing how to convert an aircraft engine to industrial use (without any manual on that for the T-53 engine). An engine in a helicopter does not operate the same as a generator producing 1000 Kw of power. The controls must be configured differently for these very different applications. Some baselines were the same, but many were different. TPT did make reasonable efforts to keep these secret, by just telling the TES engineers the set-points at which to perform certain actions. TPT further sought to keep the trade secrets secret by so stating in every email from TPT's Electrical Manager Jimmie Growe [sic] to David Crowe. This was more than a reasonable effort to maintain secrecy of the trade secret, as the software was supposed to be owned by TPT. TPT purchased it for that purpose. TPT was not paying TES to come train for free at TPT's facility so that TES could then take that trade secret and attempt to sell it to other companies. If TPT had known that TES would try to steal the trade secrets of how to control a T-53 engine for industrial use, much more effort at secrecy would have been made. Finally, the circumstances that required TES to protect the secret from disclosure were the ongoing negotiations between TES and TPT as to the nature of their relationship. TES represented to TPT that TES wanted an exclusive relationship with TPT for the T-53 engine powered generators and wanted to be a partner. (See TES Motion for Protective Order page 10 lines 11/12 where TES alleges a "Turbine and TES Joint Venture[.]" TPT at some point declined, and at that point TES really began behaving in bad faith. Again, at all times in email correspondence between TPT's Electrical Manager and TES personnel, the TPT emails stated that the information contained therein constituted trade secrets and gave the recipient notice of the same.
Pl.'s SOF (Doc. 90), Exh. "D" Interrogatory No. 7 Answer. In response, Turbine reasserts "that its trade secrets are a compilation consisting of the parameters and settings, including timing, temperatures, flow rates, horsepower settings, pressures, warning protocols, and shutdown protocols, necessary to make a T-53 engine run on field gas drive a one megawatt (1 mw) generator in oil and gas industry applications in remote locations where personnel cannot be constantly on site monitoring it to prevent catastrophic failures. Def.'s Controverting SSOF (Doc. 96) at ¶ 14; see also McIntyre Decl. 9/25/2015 (Doc. 108) at ¶ 11.
D. Public Availability
TES asserts that "[t]he timing, temperatures, flow rates, horsepower settings, and pressures at which the T-53 optimally operated, ' identified in Turbine's Counterclaim is publicly available information." Pl.'s SOF (Doc. 90), Crowe Aff. (Exh. "E") at ¶ 4. TPT disagrees, asserting "[u]nlike aviation-engine information, [the specific] information [it uses] is not publicly available information and is known only to TPT due to TPT and Ted McIntyre's extensive experience and experimentation with the T-53 engine." Def.'s Controverting SSOF (Doc. 96), Exh. "A" at ¶¶ 2-15 & Exh. "E" at ¶¶ 8-15. In support of its contention, TES cites several documents that it believes demonstrate the public availability of Turbine's purported trade secrets. First, Turbine's engineer, Thomas Leonard, sent an e-mail to TES with the subject line, "T-53 IGV Information out of Training Manual" and an electronic excerpt of the Honeywell T53 Series Intermediate Maintenance Training Manual attached. Pl.'s SOF (Doc. 90), Leonard E-mail (Exh. "1") TES000976-983. TES further asserts that the Honeywell Training Manual excerpt contains the optimal settings for the T53 guide vane. Id., Exh. "1" at TES000982. Second, TES states that the United States Army Aviation Report on the T53 contains relevant specifications, and is further evidence that Turbine's alleged trade secrets are publicly available. Pl.'s SOF (Doc. 90) at ¶ 18. Specifically, TES point to "graphs at p. 89 and 90 (Figures 52 and 53 that contain the IGV Guide Vane Schedules." Id. at ¶ 19. "These graphs - and other portions of the document - contain the relevant T53 performance information that Tom Leonard located and then provided to TES as an input in TES's code." Id. Third, TES proffers "multiple vendors offering the T-53 training manual (and other information such as mechanics' manuals) for as little as $30." Id. at ¶ 21.
Turbine asserts that the "Honeywell Training Manual contains information about the appropriate settings for the T-53 engine [and the optimal settings for the T53 guide vane] for use in aircraft purposes and using liquid fuel ." Def.'s Controverting SSOF (Doc. 96) at ¶¶ 16-17 (emphasis in original), Exh. "A" at ¶ 13, Exh. "E" at ¶ 9. Turbine further points out that "[t]he settings necessary to power the T-53 engine for use in aircraft purposes and using traditional liquid fuel are not the same as the settings necessary to successfully use a T-53 engine transformed to run on field gas to drive a one megawatt (1 mw) generator in oil and gas industry applications in remote locations where personnel cannot be constantly on site monitoring it to prevent catastrophic failures." Id., Exh. "A" at ¶¶ 6-9, 13-14 & Exh. "E" at ¶¶ 9-15. Turbine states that the settings referenced in the Honeywell Training Manual were a starting point, not and end point. Id., Exh. "A" at ¶¶ 6-15 & Exh. "E" at ¶¶ 9-15. Ultimately, the optimal settings were derived through extensive experimentation by Turbine. Id., Exh. "A" at ¶ 14, Exh. "E" 9-15. Similarly, Turbine states that "[t]he referenced U.S. Army Aviation Report contains information about the appropriate settings for the T-53 engine for use in aircraft purposes and using liquid fuel. " Def.'s Controverting SSOF (Doc. 96) at ¶ 18-20 (emphasis in original). Turbine reasserts the unique nature of the settings required for ...