Modumetal, Inc. v. Xtalic Corp., And John Hunter Martin

rit.Eo
COUAT OF APPEALS DPI I
STATE OF WASHINGTON

2018JUN 25 AM 9:27

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

MODUMETAL, INC., No. 76708-9-1

Appellant,
DIVISION ONE
V.

XTALIC CORPORATION,
AND JOHN HUNTER UNPUBLISHED OPINION
MARTIN,

Respondents. FILED: June 25, 2018

SPEARMAN, J. — John Hunter Martin left Modumetal Inc. to work for Xtalic Corp.
Xtalic subsequently filed two patent applications describing processes in an area that

both companies had been researching. Modumetal brought claims for trade secret

misappropriation, breach of confidentiality obligations, and breach of contract against

Martin and Xtalic. The trial court granted Xtalic's motion for summary judgment and

denied Modumetal's CR 56(f) request for a continuance to pursue further discovery.1

Because there is sufficient evidence to raise issues of material fact regarding

Modumetal's claims, we reverse.

1 Co-defendants Xtalic and Martin are referred to as "Xtalic" throughout, except where an issue is
raised that requires each to be discussed separately.
No. 76708-9-1/2

FACTS

Modumetal, Inc. and Xtalic Corporation are competitors in the field of research,

development, and manufacture of materials and technology engineered at the nano-

scale.2 Modumetal is based in Washington, and Xtalic is based in Massachusetts. Both

companies have worked with a process known as "electrodeposition." This process

allows a coating of metal to be deposited onto a surface by submersing the item in a

specially developed chemical bath and running an electrical current through it. The

resulting metallic coating can be used to improve corrosion and wear resistance, and

aesthetic qualities. This process can also be used to form freestanding metal by

depositing material thickly and then detaching the substrate, a process known as

electroforming. The electrodeposition process can be manipulated by altering various

parameters, such as the metal or alloy being plated, the composition and temperature of

the bath, bubbling various gases through the bath, and changing the frequency,

magnitude, or duration of the current. The goal is to develop and identify valuable and

unique "recipes" for effectively electrodepositing a particular metal or alloy onto a

particular substrate on an industrial scale for commercial purposes.

In 2008, John Hunter Martin began working at Modumetal as a student intern. At

that time, Modumetal was one of the few companies in the world actively working to

develop a commercially viable system for electrodepositing aluminum coatings from

ionic liquids. On June 13, 2008, Martin signed Modumetal's "Assignment of Inventions,

Non-Disclosures and Non-Solicitation Agreement." Clerk's Papers(CP)at 4130-32. The

agreement defined "Confidential Information" as:

2A nanometer is .000001 of a millimeter.

2
No. 76708-9-1/3

[1]nformation (i) disclosed to or known by me as a consequence of my
employment with the Company,(ii) not generally known to others outside
the Company, and (iii) which relates to the trade secrets or otherwise to
the research, development efforts and methodologies, testing engineering,
manufacturing, marketing, sales, finances or operations (including without
limitation any processes,formulae, methods, techniques, devices, know-
how, manufacturing processes, customer lists, sales statistics, tactics and
projections, marketing strategies and plans, and personnel information or
data) of the Company or of any other party which has entrusted such
information to the Company in confidence.

CP at 4130.

Martin agreed to "never disclose or use any of the Confidential Information for the

benefit of myself or another, unless directed or authorized in writing by the Company to

do so." CP at 4131. He further agreed that during his employment, he would avoid

"financial or other interests or relationships with the Company's customers, suppliers or

competitors which might impair my independence of judgment on behalf of the

Company." Id. The agreement did not contain an express non-compete clause.

In 2009, following his graduation from the University of Washington, Modumetal

hired Martin as a full time employee. In February 2010, Martin took the lead on a

research project involving electrodeposition of aluminum onto various substrates from

ionic liquid baths. The work was partially motivated by Apple's interest in developing a

commercially viable process for electrodepositing aluminum onto iPhone cases to

improve corrosion resistance and the surface finish. Modumetal considered its research

into electrodeposition of aluminum using ionic liquids, as well as its relationship with

Apple, to be highly confidential.

As part of this research, Modumetal procured several premixed ionic baths

designed for the electrodeposition of aluminum from BASF, a large commercial

chemical company. "A101" contained a ratio of 1.5/1 AlC13 to 1-ethyl-3-methylimidazoium

3
No. 76708-9-1/4

(EMIM); "A102" consisted of A101 plus an additive known as sodium dodecyl sulfate

(SDS); and "A103" consisted of A101 plus an additive known as

hexadecyltrimethylamMonium chloride(HDMAC). CP at 1799, 4004. At the time, BASF

was not aware of any effective commercial scale process for using its liquids for

electrodepositing aluminum, and it was very interested in Modumetal's research.

Accordingly, Modumetal and BASF signed secrecy agreements to prevent each party

from disclosing confidential information shared during the course of their dealings,

including results from Modumetal's evaluation of BASF's ionic liquids.

Modumetal provided Martin with a textbook called "Electrodeposition From Ionic

Liquids" to aid his work. CP at 1799. He used the premixed BASF ionic baths as a basis

for his experiments, modifying them with additives and altering various parameters in an

attempt to enhance the efficiency and effectiveness of the electrodeposition process. He

experimented with various substrates, including flat steel, stainless steel, aluminum, and

magnesium, as well as nickel-plated iPhone cases supplied by Apple. Martin also

experimented with treating the substrates to enhance adhesion, a process known as

"surface preparation." CP 4363. Despite these efforts, Martin claimed that he was

"unable to get a satisfactory result on a repeatable basis." CP at 1799.

In July 2010, Martin's colleague Jesse Unger took over as lead researcher for the

project. According to Modumetal's CEO, Christina Lomasney, Martin remained a

member of Modumetal's "Corrosion Team" and would have been apprised of Unger's

progress on the project via weekly team meetings. CP at 4003. Martin also expressly

verified by signature (a practice known as "witnessing")some of Unger's lab notebooks

regarding his continued research on electrodeposition of aluminum. CP at 1799, 3722.

4
No. 76708-9-1/5

In August 2010, Lomasney told Unger that Apple was pulling out of the project for

reasons unknown at that time. Lomasney instructed Unger to continue the project, and

the "[o]nly change is that we won't be focused on the iPhone substrates for now." CP at

2032. In September 2010, Unger submitted a report summarizing his experiments using

"BASF Basionics EMIM CI 1:1:5 AlC13 Ionic Liquid plating bath ... to determine the

optimal conditions for aluminum deposition" and offering recommendations for future

research. CP at 2096. According to Lomasney,"Modumetal was able to successfully

plate aluminum onto different substrates while Mr. Martin was employed at Modumetal"

and "made substantial progress on such research during that time." CP at 4004-05.

In late 2010, Martin applied for a position as an Engineering Project Manager at

Xtalic. Martin's resume indicated that Modumetal was his only relevant experience after

college. The resume also stated that Martin had multiple proprietary patents pending

approval, including a "[d]eposition process for [a]luminum," and that his technical skills

included Imletallic deposition with ... [m]olten [s]alt media."3 CP at 4127.

Dr. Alan Lund, co-founder and Chief Technology Officer of Xtalic, interviewed

Martin by phone in December 2010. Martin and Lund then exchanged roughly a dozen

emails, culminating with Martin interviewing at Xtalic's Massachusetts offices in January

2011. After the interview, Martin emailed Xtalic employee Dr. Shiyun Ruan, stating that

"Nonic liquids are one of my favorite topics and would be happy to share what I know

outside the scope of my current company's intellectual property." CP at 4154.

3 Martin later admitted this was a reference to ionic liquids.

5
No. 76708-9-1/6

Xtalic decided that Martin was not experienced enough for that position, but they

thought he might be a good candidate to join a team Xtalic was assembling to conduct

research on electrodeposition of an aluminum-manganese alloy. In February 2011,

Lomasney verbally recommended to Martin that he seek employment elsewhere. Soon

thereafter, Xtalic offered Martin a job as a research and development engineer. Martin

informed Modumetal that he was leaving and gave two weeks' notice, without

mentioning that he had already been hired by Xtalic.

In March 2011, after moving to Massachusetts and beginning his new job, Martin

emailed Christina Lomasney and told her "since I left[Modumetal] I have accepted a

position at Xtalic." Martin assured Lomasney that he would "maintain full compliance

with the non-disclosure agreement I signed." CP at 3534. Lomasney responded "I

expect that you've a fun future in plating and metallurgy ahead of you" and reminded

Martin of his obligations regarding the agreements he signed. She did not specifically

mention aluminum. A few months later, counsel for Modumetal wrote Xtalic to ask that it

take proactive steps to prevent breach of the Confidentiality Agreement. In particular, "to

prevent the inadvertent use or disclosure of Modumetal confidential information ... Mr.

Martin should be walled off from any involvement in the design of electroplating baths

as well as in the production and testing of nanolaminated alloys containing nickel for

use in corrosion and wear protection applications." CP at 5224-25. According to

Lomasney, the letter did not expressly mention aluminum because Modumetal wanted

to keep its aluminum research secret.

At Xtalic, Martin was immediately assigned to a new research team working on

electrodeposition of an aluminum-manganese alloy. Dr. Chris Schuh, Xtalic's co-founder

6
No. 76708-9-1/7

and professor at Massachusetts Institute of Technology (MIT), began researching

electrodeposition of aluminum alloys in 2006. Dr. Schuh's doctoral student, Shiyun

Ruan, eventually completed her dissertation on the creation and electrodeposition of a

nanocrystalline aluminum-manganese alloy. Dr. Ruan's optimal electrodeposition recipe

involved an ionic bath composed of a ratio of 2:1 aluminum trichloride to EMIM and

using square, reverse pulse waveforms. In 2010, Xtalic licensed the rights to that

application and hired Dr. Ruan to pursue further research in this area.

According to Dr. Lund, the goal of the research team was to figure out how

processes developed at MIT by Dr. Ruan could be scaled up to a commercial level. Dr.

Lund managed the team and guided the research; Dr. Ruan tested samples and served

as project coordinator; Martin participated in electrodeposition experiments; and Dr.

Witold Paw worked with bath chemistry development.

In March 2013, Xtalic filed a patent application entitled "Electrodeposition in Ionic

Liquid Electrolytes." U.S. Patent Application No. 13/830,531, Publication No. US

2014/0272458 Al (Sep. 18, 2014)(Ruan et al, applicant)(`531 Application). CP at 4372.

The named inventors were Dr. Ruan, Dr. Paw, Martin, and Dr. Lund. Although the

patent application "focused on chemistries, methods, and systems for use with

aluminum manganese based alloys," it specified that the disclosed processes are

"applicable to the electrodeposition of any metal based system in an ionic liquid

electrolyte." CP at 4393.

In May 2013, Xtalic and Apple entered into a joint development agreement.

According to Dr. Lund, Xtalic had been seeking to engage Apple as a research partner

7
No. 76708-9-1/8

or customer since 2010. Shortly thereafter, Martin left Xtalic to work at Hughes

Research Laboratories in California.

In May 2014, Xtalic filed a patent application entitled "Preparation of Metal

Substrate Surfaces for Electroplating in Ionic Liquids." U.S. Patent Application No.

14/271,371, Publication No. US 2015/0322582 Al (Nov. 12, 2015)(Freydina et al, •

applicant)('371 Application). CP at 4561. The named inventors were Dr. Evgenia

Freydina, Dr. Ruan, Dr. Schuh, and Dr. Lund. The application described "methods for

preparing metal substrates prior to electroplating in order to provide a well-adhered

electroplated metal layer," including aluminum or aluminum alloys. CP at 4571.

Lomasney was "stunned" when she learned of Xtalic's patent applications. CP at

4006. She believed they disclosed specific formulations and approaches that Martin

worked on or knew about at Modumetal, and could prevent Modumetal from further

developing this technology.

In April 2016, Modumetal filed a lawsuit asserting six claims:(1) breach of

obligation of confidentiality against Martin,(2) breach of contract against Martin,(3)

misappropriation of trade secrets against Martin,(4) inducement to breach of obligation

of confidentiality owed to Modumetal against Xtalic,(5) inducement to breach of

contractual obligation of confidentiality owed to Modumetal against Xtalic, and (6)

misappropriation of trade secrets against Xtalic.

In June 2016, Modumetal served its first set of discovery requests on Xtalic,

focusing on the '531 Application. Xtalic objected to discovery related to the merits of the

case "unless and until jurisdiction over Xtalic has been established, until Modumetal

identifies the trade secrets at issue with particularity so as to determine the appropriate

8
No. 76708-9-1/9

scope of discovery, and until a protective order and the appropriate protections for

confidential and proprietary information.., is entered." CP at 3066-67. The trial court

entered a protective order to address the parties' concerns regarding secrecy of

information, and subsequently granted several motions to seal certain documents to

protect confidential information.

In July 2016, Xtalic filed a motion to dismiss on the pleadings pursuant to CR

12(c), arguing that the court lacked personal jurisdiction under RCW 4.28.185.

Modumetal opposed the motion. The trial court concluded that Xtalic is subject to

personal jurisdiction, and it denied Xtalic's motion to dismiss.

In September and October 2016, Modumetal provided additional information to

Xtalic. In response, Xtalic agreed to provide limited document production. In November

2016, Modumetal moved to compel Xtalic to fully participate in discovery, and Xtalic

moved to compel Modumetal to identify its trade secrets with specificity. In January

2017, the trial court granted Modumetal's motion to compel discovery from Xtalic,

granted in part Xtalic's motion to compel Modumetal to identify its trade secrets with

particularity, and granted Modumetal's motion to seal certain documents and allow for

the filing of redacted versions. Both parties produced additional documents.

In January 2017, Modumetal issued a second set of discovery requests, this time

focusing on the '371 Application. Xtalic objected arguing that discovery on the '371

Application is outside the scope of the complaint and that Modumetal failed to identify its

trade secrets with particularity. Modumetal moved to compel responses to its second

set of discovery requests, and Xtalic moved for a protective order. The trial court

concluded that although the language of the complaint did not foreclose discovery on

9
No. 76708-9-1/10

the '371 Application, and there is no surprise involved, such discovery "was clearly an

afterthought that arose after significant discovery had already been completed." CP at

692. Thus, allowing such discovery without a specific identification from Modumetal as

to what trade secrets or confidential information were allegedly disclosed by Martin

would constitute a "'fishing expedition." CP at 692. The court denied without prejudice

Modumetal's motion to compel discovery and granted Xtalic's motion for protective

order regarding the discovery on the '371 Application. The court stated that it would

consider a motion to compel anew if Modumetal complies with the court's previous

order to identify and describe its trade secrets with particularity.

In response, Modumetal supplemented its disclosures and continued to seek

discovery from Xtalic on the '371 Application. When Xtalic indicated that the requested

documents were subject to attorney-client privilege, Modumetal asked Xtalic to produce

a privilege log identifying which documents it was withholding so they could consider

whether privilege attaches and file a motion to compel if necessary. Xtalic indicated that

it would provide a privilege log, but it never did so.

In March 2017, Xtalic moved for summary judgment. Xtalic supported its motion

with declarations from Dr. Lund and Martin. Modumetal argued that Xtalic's summary

judgment motion should be denied, or at least continued pending further discovery

pursuant to CR 56(f). Modumetal offered two declarations from Charles Hozeska, an

expert in electrodeposition of aluminum and aluminum alloys on various substrates

using ionic baths. As Lead Materials Engineer for Apple, Hozeska was part of the Apple

team that approached Modumetal in 2009 regarding the development of a commercially

10
No. 76708-9-1/1 1

viable ionic electroplating process for aluminum. After responding to Xtalic, Modumetal

renewed its motion to compel regarding the '371 Application.

On April 14, 2017, the trial court granted summary judgment to Xtalic on all

claims. In its oral ruling, the court stated that it had not seen evidence of

misappropriation. Specifically, it stated that there was no evidence that the patent

applications exist because of a disclosure of protected information; rather, there was

only a "coincidental or circumstantial end result that covers topics of the same nature

that Mr. Martin worked on at Modumetal, without ... a clear specification as to what

exactly it is he is supposed to have conveyed, and how that might have been

conveyed." Verbatim Report of Proceedings(VRP)(4/14/17) at 67. Regarding the

breach of confidentiality claims, the court stated that they are preempted "to the extent

that I understand that the confidential information and the trade secret information are

identical." VRP (4/14/17) at 65. Without explicitly ruling on Modumetal's motion to

compel, the trial court denied Modumetal's CR 56(f) motion for a continuance to pursue

further discovery, finding that Modumetal failed to "specify the information that they think

they're going to receive...." VRP (4/14/17) at 64.

Modumetal appealed the order granting summary judgment and the order

denying its CR 56(f) motion for a continuance. This court granted Modumetal's motion

to file unredacted briefs under seal pursuant to GR 15(c)(2). Modumetal appealed.

DISCUSSION

Misappropriation of Trade Secrets

We review de novo a trial court's decision to grant summary judgment. Mohr v.

Grantham, 172 Wn.2d 844, 859, 262 P.3d 490 (2011). The moving party is entitled to

11
No. 76708-9-1/12

summary judgment as a matter of law if there is no genuine issue as to any material

fact. CR 56(c). "The defendant may support the motion by merely challenging the

sufficiency of the plaintiff's evidence as to any such material issue." Las v. Yellow Front

Stores, Inc., 66 Wn. App. 196, 198, 831 P.2d 744 (1992). In response,"the nonmoving

party 'must set forth specific facts' demonstrating a genuine issue of fact." Boquch v.

Landover Corp., 153 Wn. App. 595,610, 224 P.3d 795(2009)(quoting Las, 66 Wn.

App. at 198). All facts and reasonable inferences are drawn in the light most favorable

to the nonmoving party. Kelsey Lane Homeowners Ass'n v. Kelsey Lane Co., Inc., 125

Wn. App. 227, 232, 103 P.3d 1256 (2005). However,"[t]he nonmoving party may not

rely on speculation or argumentative assertions that unresolved factual issues remain."

Little v. Countrywood Homes, Inc., 132 Wn. App. 777, 780, 133 P.3d 944(2006)(citing

Marshall v. Bally's Pacwest, Inc, 94 Wn. App. 372, 377, 972 P.2d 475 (1999).

"Summary judgment is proper 'only if reasonable persons could reach only one

conclusion." Kelsey Lane Homeowners Ass'n., 125 Wn. App. at 232(quoting Hansen v.

Friend, 118 Wn.2d 476, 485, 824 P.2d 483(1992)).

Modumetal argues that the trial court erred in dismissing its claims for

misappropriation of trade secrets against Xtalic. The Uniform Trade Secrets Act

(UTSA), chapter 19.108 RCW,"codifies the basic principles of common law trade secret

protection" by which a plaintiff can receive damages for misappropriation of trade

secrets. Ed Nowoqroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 438, 971 P.2d 936(1999)

(citing MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 520 (9th Cir. 1993).

12
No. 76708-9-1/13

"A plaintiff seeking to establish a trade secrets claim under[UTSA1 has the

burden of proving that legally protectable secrets exist." Boeing Co. v. Sierracin Corp.,

108 Wn.2d 38, 49, 738 P.2d 665 (1987). RCW 19.108.010(4) defines "Trade secret" as

information, including a formula, pattern, compilation, program, device,
method, technique, or process that:
(a) Derives independent economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper
means by other persons who can obtain economic value from its
disclosure or use; and
(b) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.

"Thus, in order to have a legally protectable interest in trade information, a party must

establish (1)that the information derives independent economic value from not being

generally known or readily ascertainable to others who can obtain economic value from

knowledge of its use and (2)that reasonable efforts have been taken to maintain the

secrecy of the information." Precision Moulding & Frame, Inc. v. Simpson Door Co., 77

Wn. App. 20, 25, 888 P.2d 1239(1995). The plaintiff's "declarations and affidavits must

provide specific, concrete examples illustrating that the ... information meets the

requirements for a trade secret." Belo Management Services, Inc. v. ClickA Network,

184 Wn. App. 649, 657, 343 P.3d 370(2014).

A person violates UTSA by misappropriating a trade secret. RCW

19.108.010(2)(b) defines "misappropriation" in relevant part as the:

Disclosure or use of a trade secret of another without express or implied
consent by a person who:
(i) Used improper means to acquire knowledge of the trade secret; or
(ii) At the time of disclosure or use, knew or had reason to know that
his or her knowledge of the trade secret was ...(B) acquired under
circumstances giving rise to a duty to maintain its secrecy or limit its
use....

Misappropriation of trade secrets can be notoriously difficult to prove:

13
No. 76708-9-1/14

'Plaintiffs in trade secret cases, who must prove by a fair preponderance
of the evidence disclosure to third parties and use of the trade secret by
the third parties, are confronted with an extraordinarily difficult task.
Misappropriation and misuse can rarely be proved by convincing direct
evidence. In most cases plaintiffs must construct a web of perhaps
ambiguous circumstantial evidence from which the trier of fact may draw
inferences which convince him that it is more probable than not that what
plaintiffs allege happened did in fact take place. Against this often delicate
construct of circumstantial evidence there frequently must be balanced
defendants and defendants' witnesses who directly deny everything....'

Monovis, Inc. v. Aquino, 905 F.Supp. 1205, 1231 (W.D.N.Y. 1994)(quoting Greenberg

v. Croydon Plastics Co., Inc., 378 F.Supp. 806, 814 (E.D.Pa. 1974).

Modumetal argues that Xtalic's patent applications, along with Hozeska's expert

testimony explaining in detail how those patent applications contained confidential

information and trade secrets that were directly connected to Martin's and Unger's lab

notebooks, is sufficient to create a genuine issue of fact as to whether Xtalic

misappropriated Modumetal's trade secrets. It contends that the act of filing patent

applications that included its trade secrets is sufficient to constitute misappropriation.

Hozeska testified that Martin was present at most or all of the meetings with

Apple and "was a significant part of the development team." CP at 4347. Regarding

evidence of misappropriation, Hozeska testified that there is a "very substantial overlap"

between what Martin did at Modumetal and the disclosure and claims of the '531

Application. CP at 4348. Specifically, he said the disclosure and many of the original

claims of the '531 Application are "extremely broad" and "directed to the very same

parameters, chemistry, alloys, and bath compositions" researched by Martin and others

during Martin's tenure at Modumetal. CP at 4349. Hozeska's declaration described in

detail how, in his opinion, the claims in the '531 Application correlated to Martin's and

Unger's work at Modumetal. Hozeska also testified that the '371 Application "describes

14
No. 76708-9-1/15

and claims the same surface preparation techniques that Mr. Martin did at Modumetal,"

and he linked Xtalic's patent claims with experiments in Martin's lab notebooks. CP at

4362.

Xtalic argues that this evidence was insufficient to survive summary judgment.

First, Xtalic asserts that Modumetal failed to specify its trade secrets with particularity.

However, in its Fourth Supplemental Response to Xtalic's interrogatories, Modumetal

specified numerous processes and techniques for the electrodeposition of aluminum

and aluminum alloys using ionic liquid electrodeposition baths (relevant to the '531

Application) and also for the preparation of metal substrate surfaces for electroplating in

ionic liquids (relevant to the '371 Application). And Hozeska noted that Modumetal's list

of confidential information and trade secrets is even more specific than what Xtalic listed

as inventions in the '531 Application.

Xtalic then argues that all of Modumetal's alleged trade secrets fail as a matter of

law for lack of evidence of misappropriation. Xtalic first asserts that there is no evidence

Martin provided job application information that allowed Xtalic to deduce that Modumetal

was researching electrodeposition of aluminum in ionic liquids. But Hozeska testified

that Xtalic knew or should have known this, because Martin's resume indicated that he

had only worked for Modumetal; that he had experience working with ionic liquids; that

he had a patent pending for the deposition of aluminum; and that Xtalic immediately put

him to work on its aluminum project.

Xtalic also argues that none of Modumetal's claimed trade secrets qualify as

such because the information was in the public domain. But Hozeska specifically

disputed this assertion. For example, he stated that the reel-to-reel process described in

15
No. 76708-9-1/16

Martin's Modumetal lab notebooks was innovative, not previously known in the art, and

was expressly claimed by Xtalic in the '371 Application. Regarding BASF's ionic baths,

Hozeska stated the fact that BASF liquids could be used for commercial processes was

unknown. He further noted that Martin and Unger modified BASF's off-the-shelf liquids

with additives, parameters, and plating processes claimed as novel in the '371

Application. Moreover, he stated that Xtalic's assertion that this information was publicly

known contradicts its declaration to the U.S. Patent and Trademark Office that the

claimed inventions are original.

Xtalic next challenges Modumetal's trade secret claims regarding various bath

compositions, processes, and substrate preparation methods. It asserts that Martin

worked on fundamentally different metals, chemistry, and processes at Xtalic than he

did at Modumetal. But Hozeska testified that the '531 Application "includes broad

disclosure and claims that are identical or nearly identical to the work that Mr. Martin

and other Modumetal researchers performed while Mr. Martin worked at Modumetal,"

including "the very same parameters, chemistry, alloys, and bath composition that Mr.

Martin and others researched at Modumetal during Mr. Martin's tenure." CP at 4348-49.

Similarly, Hozeska testified that the '371 Application "describes and claims the same

surface preparation techniques that Mr. Martin did at Modumetal." CP at 4362.

Xtalic further asserted that Martin had nothing to share because his Modumetal

research was unsuccessful. But there is evidence that Martin was kept apprised of

Modumetal's electrodeposition research after his colleague Jesse Unger took over the

project. And Hozeska and Lomasney both indicated that Modumetal made substantial

progress on such research during the time Martin was there.

16
No. 76708-9-1/17

Xtalic further contends that the mere fact that patent claims cover processes

attempted by a member of a research team at a prior employer, does not allow an

inference of misappropriation. But Xtalic cites no cases holding that such proof is never

sufficient to overcome summary judgment. And there are cases that generally support

Modumetal's position. See, e.g. Altavion, Inc. v. Konica Minolta Systems Laboratory

Inc., 226 Cal.App. 4th 26, 66, 171 Cal.Rptr.3d 714(2014)(defendant's act of secretly

filing patent applications disclosing plaintiffs ideas "was a classic violation of trade

secret law"); Sokol Crystal Products, Inc. v. DSC Communications Corp., 15 F.3d 1427,

1432 (7th Cir. 1994)(jury entitled to draw inference of misappropriation based on

defendant's access to plaintiff's trade secrets and development of similar product);

Leggett & Platt, Inc. v. Hickory Springs Mfg. Co., 285 F.3d 1353,1361 (2002)(access

and similarity may support a trade secret misappropriation claim).

Xtalic next argues that Modumetal's claims fail because the evidence

demonstrates that Xtalic independently developed the processes it sought to patent.

The UTSA "does not offer protection against discovery by fair and honest means, such

as by independent invention." Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476, 94

S.Ct. 1879, 40 L.Ed.2d 315(1974). Xtalic points to evidence that Dr. Schuh and Dr.

Ruan had been investigating electrodeposition of aluminum from ionic liquids for several

years before Martin came on board. There is ample evidence in the record that Xtalic

had been conducting electrodeposition research before Martin arrived. In particular,

Xtalic emphasizes the value of Dr. Ruan's independently developed "optimal recipe."

But Hozeska's declarations documented in detail many similarities between Martin's

work at Mod umetal and Xtalic's patent application claims, noting that they were very

17
No. 76708-9-1/18

broad and not limited to a specific "optimal recipe." In addition, Hozeska stated that just

before Martin left to work for Xtalic, "Modumetal had proven that they could accomplish

such electroplating at a much faster rate than was doable with the earlier electrolytic

process...." CP at 4347. This creates a question of fact regarding whether and to what

extent Xtalic's patent disclosures and claims were developed independently, as

opposed to being derived from Modumetal's research. "In the context of trade secret

misappropriation, information may be improperly 'used' in that it is unlawfully acquired

and then built upon or modified before being disclosed or benefit derived." SkinMedica,

Inc. v. Histoqen Inc., 869 F.Supp.2d 1176, 1197(S.D.Cal. 2012).

Xtalic further argues that Modumetal's argument is based on the inevitable

disclosure doctrine, which allows an employer to enjoin an employee from engaging in

competitive employment based on an inference that the employee will inevitably use or

disclose trade secrets. Washington has neither adopted nor rejected the inevitable

disclosure doctrine. Moore v. Commercial Aircraft Interiors, LLC, 168 Wn. App. 502,

513, 278 P.3d 197 (2012). Modumetal contends that it need not rely on the inevitable

disclosure doctrine, as misappropriation of trade secrets can be inferred from the

patent. We agree. As discussed above, Hozeska's testimony demonstrated the possible

connection between Martin's work at Modumetal and Xtalic's patent applications. Thus,

we need not and do not address the applicability of the inevitable disclosure doctrine.

In sum, we conclude that Hozeska's expert testimony, along with the evidence in

the record upon which he relied in reaching his conclusions, was sufficient for a

reasonable jury to infer without conjecture or speculation that misappropriation of a

18
No. 76708-9-1/19

trade secret occurred.4 The trial court erred in dismissing Modumetal's claims on

summary judgment.

Preemption

Modumetal contends that the trial court erred in concluding that the UTSA

preempted its common law claims for breach and inducement of breach of

confidentiality obligations.5 At the summary judgment hearing, the trial court agreed with

Xtalic that Modumetal's common law confidentiality claims were preempted because

"your description of trade secrets and confidential information are the same."6 VRP

(4/14/17) at 73.

Modumetal, citing Boeing v. Sierracin, 108 Wn.2d 38, argues that the trial court's

ruling was legally erroneous because it disregarded controlling precedent. In Boeing,

the Washington Supreme Court held that Washington's UTSA does not displace

common law claims for breach of confidential relationship or breach of contract. The

court observed that UTSA "displaces conflicting tort, restitutionary, and other law of this

state pertaining to civil liability for misappropriation of a trade secret" but does not affect

"[c]ontractual or other civil liability or relief that is not based on misappropriation of a

trade secret." Id. at 48(quoting RCW 19.108.900(1)(2)(a)). The court further noted "[t]he

United States Supreme Court has held that proof of trade secrets is not required for

breach of confidentiality claims, which may be brought independently of trade secrets

4 Xtalic also argues that Modumetal has failed to show that it was damaged by the alleged
misappropriation. But because Xtalic did not present this argument to the trial court, we will not consider it
on appeal. RAP 2.5(a); Lindblad v. Boeing Co., 108 Wn. App. 198, 207, 31 P.3d 1(2001).

5 Xtalic concedes that UTSA does not preempt Modumetal's contract-based claims.

6 The written order indicates that summary judgment was granted because there were no genuine
issues of material fact regarding Modumetal's claims. It does not reflect the trial court's oral ruling that
Modumetal's breach of confidentiality claims were preempted by its trade secrets claims.

19
No. 76708-9-1/20

claims." Id. at 48 (citing E.I. Du Pont De Nemours Powder Co. v. Masland, 244 U.S.

100, 102, 37 S.Ct. 575, 61 L.Ed. 1016 (1917)). Accordingly, the Boeing court held that

the trial court did not err in refusing to consolidate Boeing's trade secret, breach of

confidentiality, and breach of contract claims. Id. Federal courts in Washington,

following Boeing, have held that UTSA does not preempt breach of confidentiality

claims. See, e.g. Pacific Aerospace & Electronics, Inc. v. Taylor, 295 F.Supp.2d 1205,

1211-12(E.D. Wash. 2003).

Boeing has not been overruled, and it is still good law. Nevertheless, in Thola V.

Henschel!, 140 Wn. App. 70, 164 P.3d 524 (2007), Division Two applied a different

analysis to the same issue without citing Boeing. Thola argued that the UTSA

preempted Henschell's common law causes of action. Id. at 82. The court began its

analysis by stating that "[a] plaintiff'may not rely on acts that constitute trade secret

misappropriation to support other causes of action." Id. at 82(quoting Ed Nowogroski

Ins., Inc. v. Rucker(Rucker I), 88 Wn. App. 350, 358, 944 P.2d 1093(1997)).7 The court

then noted that "[a] majority of UTSA jurisdictions:(1) assess the facts that support the

plaintiff's civil claim;(2) ask whether those facts are the same as those that support the

plaintiff's UTSA claim; and (3) hold that the UTSA preempts liability on the civil claim

unless the common law claim is factually independent from the UTSA claim." Thola at

82, citing Mortgage Specialists, Inc. v. Davey, 153 N.H. 764, 778-79, 904 A.2d 652

(N.H. 2006). Stating that "proper application of this three-step analysis precludes

7 Rucker did not mention or discuss Boeing, either. In Rucker, the respondent argued that UTSA
displaced the appellant's tort claims for misuse of confidential information and intentional interference.
The court stated that because UTSA "specifically displaces conflicting tort laws pertaining to trade secret
misappropriation," a plaintiff"may not rely on acts that constitute trade secret misappropriation to support
other causes of action." Rucker, 88 Wn. App. at 358. Because the tort claims were based on the same
acts as the trade secrets claims, the court ruled that they were displaced by UTSA. Id.

20
No. 76708-9-1/21

duplicate recovery for a single wrong," the Thola court "adopt[ed] this analytical

framework as a helpful guide to determine whether, under the facts of the case, the

UTSA preempts a civil claim." Thola at 82. The court held that Thola's common law

business expectancy claim, unlike her UTSA claim, did not involve the acquisition or

disclosure of confidential information and was therefore not preempted. Id. at 83.

Xtalic offers no persuasive grounds upon which to distinguish Boeinq's express

holding that breach of confidentiality claims may be brought independently of trade

secrets claims. Until or unless the Washington Supreme Court overrules Boeing and

adopts the Thola analysis, Boeing controls. Accordingly, we follow Boeing and conclude

that Modumetal's common law confidentiality claims are not preempted by its trade

secrets claims, regardless of whether they are based on the same facts.

Contractual Breach of Confidentiality Obligations

Xtalic asserts without further analysis or argument that Modumetal's claims for

contractual breach of confidentiality obligation fail on the merits for the same reasons its

trade secrets claims fail: an absence of genuine issues of material fact as to whether

Martin shared or used Modumetal's confidential information with Xtalic, or that

Modumetal suffered damages as a result. Because we conclude that Modumetal met its

burden of production regarding misappropriation of trade secrets, and this evidence also

forms the basis of Modumetal's contractual breach of confidentiality obligation claims,

they survive as well.

Request for Continuance

Modumetal argues that the trial court erred by denying its CR 56(f) request for a

continuance to obtain further discovery. At the summary judgment hearing, the trial

21
No. 76708-9-1/22

court agreed with Xtalic that Modumetal's continuance request was a "fishing expedition

that doesn't meet his burden under 56(0" because "[h]e's got to tell you that he's got a

reason to think it exists ... and there is none." VRP (4/14/2017) at 72.

We review a trial court's denial of a CR 56(f) motion for abuse of discretion.

Barkley v. GreenPoint Mortg. Funding, Inc., 190 Wn. App. 58, 71, 358 P.3d 1204

(2015)."A court abuses its discretion when it bases its decision on unreasonable or

untenable grounds." Clarke v. Office of Attorney Gen., 133 Wn. App. 767, 777, 138 P.3d

144 (2006).

Under CR 56(f):

[s]hould it appear from the affidavits of a party opposing the motion that,
for reasons stated, the party cannot present by affidavit facts essential to
justify the party's opposition, the court may refuse the application for
judgment or may order a continuance to permit affidavits to be obtained or
depositions to be taken or discovery to be had or may make such other
order as is just.

A court may deny a CR 56(f) motion for continuance where "(1) the requesting party

does not offer a good reason for the delay in obtaining the desired evidence;(2) the

requesting party does not state what evidence would be established through the

additional discovery; or (3)the desired evidence will not raise a genuine issue of

material fact." Tellevik v. Real Property Known as 31641 West Rutherford Street, 120

Wn.2d 68, 90, 838 P.2d 111 (1992)(quoting Turner v. Kohler, 54 Wn. App. 688, 693,

775 P.2d 474 (1989)). Justice should be the primary consideration in ruling on a motion

for a continuance. Copple v. Snow, 56 Wn. App. 499, 508, 784 P.2d 554(1990).

Regarding the '531 Application, Modumetal asserted that it had been waiting

more than a month for Xtalic to provide a privilege log so that it could confer with Xtalic

as to whether privilege should attach and file a motion to compel if necessary. At the

22
No. 76708-9-1/23

summary judgment hearing, counsel for Xtalic acknowledged that he had been working

on a privilege log, saying "I'm sorry it's taken awhile" because "[t]here's thousands of

documents." VRP (4/14/2017) at 67. He nevertheless justified his failure to complete

and produce the privilege log prior to the summary judgment hearing, claiming that

Modumetal had failed to provide "some basis by which to invade the privilege." Id. But

Modumetal did not seek to invade the privilege. Rather, it sought to determine whether

the privilege properly applied to all of the documents Xtalic was withholding on this

basis. Moreover, in a sworn declaration, Modumetal explained that it "believes such

discovery is necessary because it could reflect directly on Mr. Martin's involvement in

the inventions claimed in the Ruan '531 patent application, and the preparation of the

patent application itself, which would or at least could bear on whether, and to what

extent, Mr. Martin used Modumetal confidential information in connection with the

inventions claimed in the application and the application itself." CP at 4037. We reject

Xtalic's self-serving assertion that it didn't need to provide a privilege log because

everything was privileged, and we conclude that the trial court abused its discretion in

denying Modumetal's CR 56(f) continuance request regarding the '531 Application.

Regarding the '371 Application, Modumetal argued that additional discovery is

necessary "to determine whether and to what extent Martin's prior surface preparation

work at Modumetal, was disclosed, either orally or otherwise, to Xtalic employees,

including those named as inventors on the '371 Application." CP at 4038. Modumetal

asserted that this discovery was relevant to Xtalic's claim that it had independently

developed the '371 Application technology, and claimed that its previous discovery

requests would not have covered all relevant information, such as emails not sent by

23
No. 76708-9-1/24

Martin. Modumetal noted that the trial court had previously denied, without prejudice, its

motion to compel Xtalic to produce this information but indicated that if Modumetal

disclosed its trade secrets with sufficient specificity, it would consider a new motion to

compel. Modumetal asserted that it had complied with this ruling by supplementing its

trade secret disclosures and refiling its motion to compel. The trial court initially

indicated that it would set aside the issue of the '371 Application until considering

Modumetal's motion to compel, but by the end of the hearing it reversed course and

agreed with Xtalic that Modumetal had failed to specify what information the additional

discovery would yield. Given that the requested discovery was subject to a pending

motion to compel, which the trial court did not expressly rule on, we conclude that its

decision to deny Modumetal's CR 56(f) continuance request on this matter was also an

abuse of discretion.

Personal Jurisdiction

Xtalic did not cross appeal the trial court's order denying its CR 12(c) motion to

dismiss for lack of personal jurisdiction under RCW 4.28.185. Instead, Xtalic raised this

issue in its respondents' brief, characterizing it as an alternative ground to affirm

summary judgment. Modumetal contends that Xtalic's request for affirmative relief is

barred for failure to file a cross appeal. We agree.

RAP 2.4(a) provides that Title appellate court will grant a respondent affirmative

relief by modifying the decision which is the subject matter of the review only (1) if the

respondent also seeks review of the decision by the timely filing of a notice of appeal or

a notice of discretionary review, or (2) if demanded by the necessities of the case." A

prevailing party that seeks no further affirmative relief from the appellate court may

24
No. 76708-9-1/25

argue any grounds in support of the trial court's order that are supported by the record.

McGowan v. State, 148 Wn.2d 278, 288,60 P.3d 67(2002). However,"notice of cross-

review is essential if the respondent 'seeks affirmative relief as distinguished from the

urging of additional grounds for affirmance." Sims, 171 Wn.2d at 442-43 (quoting

Robinson v. Khan, 89 Wn. App. 418, 420, 948 P.2d 1347 (1998).

Accordingly, we begin by inquiring whether Xtalic's personal jurisdiction

argument, which it characterizes as an alternative ground to affirm summary judgment

dismissal of Modumetal's claims, is in fact a request for affirmative relief. The Third

Circuit's reasoning in EF Operating Corp. v. American Bldqs., 993 F.2d 1046(1993) is

instructive. In EF Operating Corp., one of the defendants moved for summary judgment

and simultaneously moved to dismiss for lack of personal jurisdiction under Federal

Rules of Civil Procedure 12(b). The district court granted summary judgment to the

defendant on the merits, but implicitly ruled against it on the jurisdictional issue. Id. at

1048. The plaintiff appealed summary judgment dismissal of its claims, but the

defendant did not file a cross-appeal. Instead, the defendant raised the personal

jurisdiction issue in its response brief.

The Third Circuit noted that "[u]nlike subject matter jurisdiction, which may be

raised by any party or court at any time, parties must affirmatively raise a personal

jurisdiction defense in a timely matter under Federal Rules of Civil Procedure 12(g) and

(12)(h)(1), lest it will be deemed waived." Id. (citing Wright & Miller, 5A Federal Practice

and Procedure, §1391 at 741-44 and 764-75 (1990); Myers v. American Dental Ass'n,

695 F.2d 716, 720(3d Cir. 1982). The court then observed that, although an appellate

court may affirm a lower court's decision on any basis, "[a] grant of summary judgment

25
No. 76708-9-1/26

and a dismissal for lack of personal jurisdiction ... are wholly different forms of relief.

The latter is a dismissal without prejudice, whereas the former is a ruling on the merits

which if affirmed would have preclusive effect." Id. at 1048-49 (citations omitted). It

therefore concluded that seeking dismissal of the complaint for lack of personal

jurisdiction cannot be characterized as seeking to support summary judgment on

different grounds; rather, it seeks to vacate the summary judgment. Id. at 1049."Thus,

where an appellant files an appeal seeking review of a summary judgment for the

appellee, the appellee must cross-appeal to contest the district court's adverse ruling on

his motion to dismiss for lack of personal jurisdiction." Id. Because the defendant-

appellee did not cross-appeal, the court declined to consider the personal jurisdiction

issue. Id.

This reasoning is persuasive. In Washington, just as in the federal courts, a

defense for lack of subject matter jurisdiction is never waived, but a defense for lack of

personal jurisdiction is waived if not timely asserted. Robb v. Kaufman, 81 Wn. App.

182, 188, 913 P.2d 828 (1996). Here, Xtalic raised personal jurisdiction as an

affirmative defense in its answer, and the trial court denied its motion to dismiss under

CR 12(c), so the issue was initially preserved for appellate review. However, Xtalic

chose not to cross-appeal from the trial court's dismissal of its CR 12(c) motion to

dismiss. "Affirmative relief 'normally mean[s] a change in the final result at trial." Sims,

171 Wn.2d at 442(quoting 2A KARL B. TEGLAND, WASHINGTON PRACTICE:

RULES PRACTICE RAP 2.4 author's cmt. 3, at 174 (6th ed. 2004). Because dismissal

on the merits with prejudice and dismissal on jurisdictional grounds without prejudice

26
No. 76708-9-1/27

are different forms of relief, Xtalic's personal jurisdiction argument is a request for

affirmative relief, not alternative grounds for affirming summary judgment.

Accordingly, Xtalic's personal jurisdiction argument is barred unless "demanded

by the necessities of the case." RAP 2.4(a). "Washington courts generally apply the

necessities provision of RAP 2.4(a) when the petitioner's claim cannot be considered

separately from issues a respondent raises in response." Sims, 171 Wn.2d at 444.

Xtalic does not explain why it failed to file a cross-appeal, or why the necessities of the

case require this court to consider its jurisdictional argument. There is no reason why

Modumetal's arguments regarding summary judgment could not have been considered

at the same time as Xtalic's jurisdictional arguments. We therefore decline to consider it.

Reversed.

Si;ea pi\c,A
)
WE CONCUR:

00

27