[00:00:00] Speaker 02: Ape Smith for appellant may please the court. [00:00:14] Speaker 04: I'd like to reserve five minutes for rebuttal. [00:00:18] Speaker 04: For more than a decade, Chatham had H&H's trade secret technology for processing and extracting pure active pharmaceutical ingredients from raw opium [00:00:29] Speaker 04: and poppy straw concentrate. [00:00:32] Speaker 02: Before you get to that, we sent out a focus order, and I would like you to address the second of these to start with, which is whether Nevada's Uniform Trade Secrets Act expressly displaces HNH's tort and restitutionary causes of action based on misappropriation of a trade secret. [00:00:53] Speaker 02: What's your answer to that? [00:00:55] Speaker 04: Well, I think the answer is it has to be yes, that that language comes from [00:00:58] Speaker 04: NRS 600A 090 itself. [00:01:02] Speaker 04: I think the question is just how that applies in this case. [00:01:05] Speaker 04: And in your view, how does it apply? [00:01:07] Speaker 04: Well, so first of all, I think Judge Navarro was clearly wrong in Sue Espante deciding that a contractual, that on the breach of contract claim, that the only way you could have damages for disgorgement was via a statutory remedy. [00:01:24] Speaker 04: I think she gets it exactly opposite. [00:01:27] Speaker 04: She said that there are no [00:01:28] Speaker 04: Uniform Trade Secret Act remedy damages if there's a contract, but it's actually just the opposite. [00:01:34] Speaker 04: If there's a contract that involves misappropriation, which is contemplated within the language of the Uniform Trade Secret Act, then the party's entitled to all of the remedies under that act for misappropriation. [00:01:48] Speaker 02: So in this case, if you had your wishes, what would you have us do? [00:01:53] Speaker 02: Send it back to the district court to consider [00:01:57] Speaker 02: your claims under the UTSA? [00:02:00] Speaker 04: Yes. [00:02:01] Speaker 04: And I think that would be fairly simple because you could do two things. [00:02:04] Speaker 04: One, on the contract claim, you could say either, I mean, there's actually a provision in the party settlement agreement, I'm sorry, not the settlement agreement, but the NDA that expressly provides for equitable remedies, such as the restitutionary remedy of disgorgement. [00:02:23] Speaker 04: But in addition, you've got the statute that provides [00:02:27] Speaker 04: Actually, I shouldn't say provides. [00:02:29] Speaker 04: It's always been the case, even at common law, before the enactment of the Uniform Trade Secrets Act, that if the contract or the claim involved misappropriation of trade secrets, that your remedy could include disgorgement of the other party's profits. [00:02:41] Speaker 00: It seems like the cleaner way is that your unjust enrichment claim is displaced by the Uniform Trade Secrets Act. [00:02:54] Speaker 00: that any remedy for unjust enrichment that's non-statutory at common law is displaced by the UTSA and governed by the UTSA and therefore is an unjust enrichment claim under the UTSA and therefore is viable to that extent. [00:03:15] Speaker 00: Do you disagree with any of what I just said? [00:03:17] Speaker 04: Only to the extent that obviously there is a contract between Chatham and H&H [00:03:25] Speaker 04: And although we've cited the cases, we cited the restatement section that talks about the extraordinary remedy of disgorgement, yeah, I would agree that the unjust enrichment can be thought of as a restitutionary cause of action for which you would have the remedies under the uniform trade secret act. [00:03:47] Speaker 03: So, counsel, if hypothetically we were to do that, but also hypothetically, [00:03:54] Speaker 03: we were to say the district court was correct in her interpretation of what is available as a damage under Nevada's common law contract law. [00:04:08] Speaker 03: How would you be harmed? [00:04:10] Speaker 03: What would you lose if we sent the disgorgement back under the statute? [00:04:19] Speaker 03: but said the district court was correct in interpreting what you have to prove for damages under a common law contract claim and you didn't do it. [00:04:30] Speaker 03: Let's say hypothetically again we affirm that but allowed you to try to get disgorgement under the statute. [00:04:38] Speaker 03: What would you be losing if we did that? [00:04:41] Speaker 04: I'd say the only thing we'd be losing, I mean obviously each of these claims [00:04:45] Speaker 04: Ultimately goes towards the same remedy. [00:04:47] Speaker 04: That's why you know when we disclose damages. [00:04:49] Speaker 04: They're all for the same remedy What we're losing obviously is the chance to prove one or more claims, right? [00:04:57] Speaker 00: So if there is a difference in like the scope of damage is a number of years or anything No, I think that would be the same So you're not disagreeing with what Judge Bennett just said then right I [00:05:12] Speaker 04: I don't think so, except that, you know, I prefer to go to the jury on multiple theories as opposed to being limited to one theory. [00:05:21] Speaker 02: But you believe that under the UTSA you can still do that. [00:05:26] Speaker 04: Absolutely. [00:05:27] Speaker 04: Right. [00:05:27] Speaker 04: And that gets to our point about the claim having been pleaded in terms of the factual allegations. [00:05:34] Speaker 04: We cited the Velez case in our supplemental authority. [00:05:37] Speaker 04: Obviously, it's a matter of common knowledge that it's not the [00:05:42] Speaker 04: the punctilious theory of pleading that matters, it's the factual allegations and it's clear. [00:05:47] Speaker 03: Yeah, go ahead. [00:05:49] Speaker 03: Even accepting that that may be a correct statement of the law, what reason could you have had or what reason did you have for not asserting an explicit claim under the statute or making this argument explicit in your response to their motions? [00:06:12] Speaker 04: Well, again, this wasn't an issue that came up in the briefing on the summary judgment, because nobody knew that Judge Navarro was going to take this footnote from an unpublished case and say, your only way to get disgorgement is through a statute. [00:06:27] Speaker 04: When even Chatham and Sun were agreeing that it was possible to get disgorgement, they just factually disputed that we had shown a causal link between their breach and their profits. [00:06:39] Speaker 02: In your 2007 lawsuit against Chatham, you brought separate cause of action, and I'm going to quote here for misappropriation of trade secrets, for misappropriation of confidential information, and misappropriation of commercial properties under Nevada law. [00:06:56] Speaker 02: You didn't allege those specifically in this lawsuit. [00:06:59] Speaker 02: Why is that? [00:07:00] Speaker 04: Meaning we didn't cite the Uniform Trade Secret Act in the claims. [00:07:04] Speaker 04: Obviously, we did cite it in the factual allegations. [00:07:06] Speaker 02: I mean, that's specific language, though. [00:07:08] Speaker 02: I mean, for the former causes of action. [00:07:12] Speaker 04: I think it made total sense because what we were doing was we were enforcing the provisions of the Settlement Agreement, which, again, established that the NDA, the prior agreement from 2000, would remain, and this is from Section 6 of the Settlement Agreement at ER 387, [00:07:29] Speaker 04: that all provisions of the NDA shall remain in full force and effect and shall no manner other than respect to plaintiff's release be diminished. [00:07:36] Speaker 04: It then goes on to provide the requirement that, yeah, you can't use our confidential trade secret information. [00:07:44] Speaker 04: So it arises in the context of a contractual breach, even though the wrong that is committed through that contractual breach also states a claim for misappropriation of trade secrets under NRS 600A. [00:08:00] Speaker 04: I don't think it makes any difference. [00:08:01] Speaker 04: In fact, as I said, under the statute itself, at 600A 030, it talks about contractual breaches being the basis for misappropriation, just as in 600A 090. [00:08:18] Speaker 04: It contemplates that a misappropriation of trade secrets claim could be based upon a contract. [00:08:23] Speaker 04: I think it's just talking about the remedy there. [00:08:25] Speaker 04: It's not requiring parties, certainly it's not a special pleading requirement. [00:08:28] Speaker 00: What position are you relying on when you say that it explicitly recognizes it can rest on a contract? [00:08:35] Speaker 04: So in two places, 600A030 subsection 1E, talking about the definition of an improper means, which is one of the elements, willful breach or willful inducement of a breach of a duty imposed by common law statute, contract, et cetera. [00:08:52] Speaker 04: So that would be one way that the trade secret claim could arise. [00:08:56] Speaker 04: And then again, in 600A 090, the displacement that you asked us to address, the displacement issue is specifically not displacing claims. [00:09:09] Speaker 04: In other words, it's not saying that if you plead a claim in unjust enrichment or for a common law claim of misappropriation of confidential information the way it was in the Frantz versus Johnson case, [00:09:22] Speaker 04: It's not that the court's going to throw out your claim. [00:09:24] Speaker 04: It's just that your remedy is going to be dictated, perhaps circumscribed, or in the case of a contract, perhaps expanded by the availability of remedies under the Uniform Trade Secret Act. [00:09:36] Speaker 02: What is your best argument that the district court erred in granting summary judgment to Chatham on your common law contract claims? [00:09:48] Speaker 04: And just I want to make sure I'm understanding your question correctly. [00:09:52] Speaker 04: Do you want me to address the damages issue, which was the basis for her decision? [00:09:55] Speaker 02: She specifically focused on common law contract claims. [00:09:58] Speaker 02: Is that all just subsumed now into the Uniform Trade Secrets Act issue? [00:10:03] Speaker 04: Well, yes, to the extent that your common law contract claim arises, the breach of contract arises from a misappropriation of trade secret, then I think the statute steps in just as it did in France. [00:10:16] Speaker 04: Again, [00:10:17] Speaker 04: The Nevada Supreme Court there, Sue Esponti, said, time out. [00:10:22] Speaker 04: There's a plain error here. [00:10:23] Speaker 04: Even though these claims were all pleaded as common law claims, we actually are going to impose the statutory scheme on top of that. [00:10:31] Speaker 04: So I do think that the statute subsumes those claims. [00:10:35] Speaker 02: From your perspective, those survive as part of the statute, right? [00:10:39] Speaker 04: Exactly. [00:10:40] Speaker 04: And again, I think it's because it's a remedy issue, not a pleading issue. [00:10:46] Speaker 04: But let me address and I think that answers your question on on her error in on what she relied on now just briefly since Chatham and son alleged that they're in any event even if damages weren't the issue that they would have prevailed on the merits of their of their breach of contract claim There is a definitely dispute in the record as to the evidence, but we've we've submitted the report from mr.. Dr.. Sturmets [00:11:14] Speaker 04: That's at ER 224 paragraph 8, talking about how Chatham relied and had to rely on H&H's confidential information to apply for and obtain the DEA licenses, including to import raw opium and to produce opiate products. [00:11:29] Speaker 04: Then Sun admitted that it had no independent process prior to its acquisition of Chatham. [00:11:36] Speaker 04: It had no DEA licenses, and so it was relying on what it got from Chatham. [00:11:42] Speaker 02: What role if any does the district court's conclusion that there was no longer any confidential relationship play in our analysis of causes of action for a breach of that nature? [00:11:59] Speaker 04: Yeah and that was interesting because she got it right at the motion to dismiss stage where she she did find that we had alleged a confidential a special relationship a confidential relationship but then at the [00:12:10] Speaker 04: summary judgment stage, she said, oh, well, that isn't enough. [00:12:14] Speaker 04: But we did submit evidence. [00:12:15] Speaker 04: The evidence was in the settlement agreement itself. [00:12:18] Speaker 04: This is an unusual settlement agreement because it actually requires the contracting party, the party with our confidential information to certify each year that we are not using your confidential information. [00:12:31] Speaker 04: It requires them to make specific statements to us. [00:12:35] Speaker 04: But there's no auditing mechanism. [00:12:37] Speaker 04: There's no independent way for us to verify it. [00:12:39] Speaker 02: We are solely and entirely reliant on the truthfulness of their statements, which is what happened here fact that you were in effect monitoring by virtue of the report What they were doing creates at least enough of a confidential relationship or certainly a trust relationship That it meets the requirements here right and as we point out in our brief [00:13:04] Speaker 04: Paragraph 17 of the settlement agreement does say accept as set forth in this agreement so that there is contemplating that things in the agreement could establish that relationship of trust unless You have any other questions safe time. [00:13:17] Speaker 04: I'd love to save the last two minutes. [00:13:18] Speaker 02: Thank you very Well, okay now we're going to hear from Mr.. Weber [00:13:33] Speaker 01: Good morning, your honor. [00:13:34] Speaker 01: May it please the court. [00:13:35] Speaker 01: Ethan Weber on behalf of Chatham Chemicals, Incorporated, and Sun Pharmaceutical Industries, Incorporated. [00:13:41] Speaker 01: This court should affirm the district court's judgment for Chatham and Sun. [00:13:46] Speaker 01: H&H's appeal is an entirely attempts to make a disgorgement remedy work in as many ways as possible. [00:13:55] Speaker 02: Let me ask you, and I did your friend, starting off with the focus order. [00:14:00] Speaker 02: In your case, Ed, you [00:14:02] Speaker 02: In terms of the diversity requirement, do you believe that the limited partnership, a limited liability company in this case, satisfies the requirements of diversity? [00:14:13] Speaker 01: As far as diversity goes, yes, Your Honor, we do believe that H&H was diverse, complete, there was complete diversity at the time of removal. [00:14:21] Speaker 01: The testimony from both of the members of H&H at the time confirmed that they had lived in Nevada and lived in Nevada for some time. [00:14:29] Speaker 02: Just the two members, right? [00:14:30] Speaker 01: That is my understanding, correct your honor. [00:14:33] Speaker 02: And with respect to the Uniform Trade Secrets Act, you agree that that expressly displaces the tort and restitutionary causes of action based on misappropriation of trade secrets. [00:14:46] Speaker 01: Yes, your honor I believe that six hundred eight zero point nine zero would displace the common law tort claims But I I think that it also just provides a separate grounds for dismissal of those claims in the first instance It displaces the remedies right correct correct so the if it is if it is going to the remedies issue I think the the separation between the breach of contract the breach of contract claim can live in conjunction with any [00:15:15] Speaker 01: for lack of a better term, preempted common law claim. [00:15:21] Speaker 01: I think that the displacement theory there would mean that those two could exist together. [00:15:29] Speaker 01: But I want to go back to a question that was first asked. [00:15:33] Speaker 01: What evidence there is to support the idea that Chatham was using H&H's confidential information? [00:15:39] Speaker 01: And the point that H&H refers to it a few places is the testimony from Dr. Sturmitz. [00:15:45] Speaker 01: But Dr. Sturmitz is relying on an inference that just because Chatham has an importing license for raw opium and raw poppy straw, that therefore they must be using H&H's process to process that material. [00:15:59] Speaker 01: And I want to step back because it's important to understand what Chatham does and doesn't do. [00:16:03] Speaker 01: Chatham uses alkaloids. [00:16:05] Speaker 01: The bane or paving and coding to produce active pharmaceutical ingredients and H&H is chemical processes that Mr.. Hack Described at pages 1 er 167 through 169 describe a chemical process for converting raw poppy material into the alkaloids that Chatham uses and [00:16:31] Speaker 01: So, but Chatham, those alkaloids that Chatham uses, it purchases on the open market. [00:16:39] Speaker 01: Jason Allen, who has been at Chatham since 1999, his declaration at SCR 130 and 131 confirms that Chatham has never converted raw opiate material into alkaloids. [00:16:53] Speaker 01: And in fact, they purchased those alkaloids on the open market, and they always have. [00:16:58] Speaker 01: And as for the DEA licenses themselves, the settlement agreement specifically carves out that H&H has no interest in those DEA licenses or in their renewal. [00:17:10] Speaker 01: And on top of that, all of the DEA licenses were granted to Chatham and Son before this settlement agreement was signed. [00:17:18] Speaker 01: The last one that Dr. Sturmitz is referring to, the import license for raw opiate material, was granted in February of 2006. [00:17:25] Speaker 01: So all of those licenses, [00:17:28] Speaker 02: Pre-date the settlement agreement between the parties With the district court essentially relied upon and finding there was no confidential relationship Sorry, is that what the district court was relying upon when she determined there was no confidential relationship [00:17:45] Speaker 01: Sure, Your Honor. [00:17:46] Speaker 01: The district court's reliance to determine there was no confidential relationship was the demarcation line of the settlement agreement is moving forward. [00:17:56] Speaker 01: And the settlement agreement specifically says that it does not create any type of special or confidential or fiduciary relationship between the parties going forward. [00:18:09] Speaker 03: So if the other side had explicitly alleged [00:18:14] Speaker 03: We are filing a claim under the Trade Secrets Act that involves a variety of remedies, it involves a variety of claims but they breached a contract, they breached the statute and we are entitled to disgorgement of profits. [00:18:33] Speaker 03: Would the grounds that the district court relied on in granting your motion, that wouldn't work, right? [00:18:38] Speaker 03: There would perhaps have to be what you're talking about [00:18:42] Speaker 03: in the last couple of minutes, but what the district court ruled on would not serve to defeat that claim, right? [00:18:49] Speaker 01: In that hypothetical scenario, yes, your honor. [00:18:51] Speaker 03: Okay, so tell me why we shouldn't treat the complaint as alleging what I said and send it back to the district court to consider whether they can state a claim under the act, whether through contract or some other ground, [00:19:09] Speaker 03: but under the explicit terms of the displacement provisions of the act? [00:19:14] Speaker 01: A few reasons, Your Honor. [00:19:15] Speaker 01: One, this court can affirm for any reason supported by the record. [00:19:18] Speaker 01: And to prove trade secret misappropriation under Nevada law, H&H would have to prove misappropriation of that trade secret. [00:19:27] Speaker 01: And before that, they would have to also prove trade secret. [00:19:29] Speaker 01: That's not something they set out to establish at summary judgment. [00:19:32] Speaker 01: It's not something that they ever argued below. [00:19:37] Speaker 01: In terms of the actual misappropriation, the record is clear. [00:19:40] Speaker 01: And H&H had a burden in summary judgment to come forward with some evidence that Chatham was using H&H's confidential material at any point. [00:19:48] Speaker 01: And they failed to do so, other than pointing to Dr. Sturmentz's testimony. [00:19:53] Speaker 01: So this court has grounds supported by the record to affirm for Chatham and Son if it decides to treat the common law claims as displaced by the Trade Secrets Act. [00:20:06] Speaker 01: So while there may be some reason that if that's the basis for the court's opinion, there's still grounds to affirm without a remand. [00:20:18] Speaker 01: And I do just want to clarify. [00:20:23] Speaker 01: The entire lawsuit itself proceeded from the amended complaint, which merely changed one of the defendants, all the way through summary judgment as a breach of contract case. [00:20:35] Speaker 01: And the breach of contract that H&H alleged [00:20:39] Speaker 01: In its amended complaint and that it carried through its summary judgment were related to two specific provisions of the settlement agreement one that H&H or the Chatham failed to provide the five-year compliance and that it failed to provide adequate notice of the purchase by Sun and its summary judgment that was the kind of the realm of the world that the parties had litigated and argued for the better course of several years and [00:21:05] Speaker 01: So the trade secret misappropriation claim, while it may have been, there may have been some issue with the displacement theory, there's nothing to support the fact that this was the theory all along, when in reality this really was a breach of contract case pointing to those two specific provisions. [00:21:34] Speaker 01: In reply at least H&H seems to move to this plain error argument that it was a plain error for the district court not to kind of Redraft or recast the complain is one for trade secrets, but but I think that the plain air is is for blockbuster errors it's not for taking the taking the evidence that was before it and the arguments that the parties had made and tried to [00:21:58] Speaker 01: figure out what H&H must have meant all along. [00:22:02] Speaker 01: I think that the better course was exactly what the district court did, which was, here is the body of evidence. [00:22:08] Speaker 01: It doesn't have a sua sponte obligation under Rule 56 to go diving into the record to read every piece of evidence that might exist. [00:22:17] Speaker 01: It has that H&H, when faced with a motion for summary judgment, had an affirmative obligation to come forward with evidence that creates a genuine issue of material fact. [00:22:26] Speaker 01: And the key material fact that they are unable to controvert is that Chatham has never used H&H's processes, never did, and never has. [00:22:36] Speaker 01: And I think for those reasons, the trade secret issue can be disposed of either by this court affirming for any grounds that it sees supported by the record or by affirming the district court's judgment below. [00:22:50] Speaker 01: There are a handful of other points to getting back to the confidential fiduciary relationship kind of question. [00:22:56] Speaker 01: And there's a sense that there's some imbalance of power that might contribute to a fiduciary or confidential relationship that could support a constructive fraud theory. [00:23:05] Speaker 01: But I think that the cases we cite in the briefing and the other cases on that front, that requires a real imbalance of power. [00:23:17] Speaker 01: not something between two companies with sophisticated counsel who have had a long history of both a work history and a litigation history to go forward. [00:23:27] Speaker 01: And I do want to just mention briefly the restatement section, section 39. [00:23:31] Speaker 01: And section 39 is really just another way, again, to get at the remedies, the only remedy that H&H put forward below, which was a disgorgement theory. [00:23:43] Speaker 01: Section 39 is [00:23:46] Speaker 01: has not been adopted by Nevada and the 11th circuit and the 5th circuit have both declined to adopt section 39 as a disgorgement theory for breach of contract in in cases that were post [00:24:02] Speaker 01: excuse me, in acrylicon in Hoffman that said, this does not align whatsoever with Georgia or Texas law on breach of contract. [00:24:12] Speaker 01: And Nevada law is no different than Texas or Georgia on that score. [00:24:17] Speaker 01: Just the last point that I wanted to raise in terms of diversity, [00:24:22] Speaker 01: Just to be clear for the court, it's not in the excerpts of the record, but it is in the district court at ECF 16. [00:24:29] Speaker 01: Just to clarify, Chatham is a Delaware corporation organized under headquartered in Tennessee, and Sun was, at the time, a Michigan corporation headquartered in New Jersey. [00:24:40] Speaker 01: That's at ECF 16. [00:24:42] Speaker 01: So with that, if the court doesn't have any other further questions, we'd stand on the briefing. [00:24:47] Speaker 02: I yield the rest of my time. [00:24:50] Speaker 02: Thank you. [00:24:50] Speaker 02: Thank you very much. [00:24:52] Speaker 02: All right, Mr. Smith, you are winding up for the day here. [00:25:00] Speaker 04: And thank you for spending the week with us. [00:25:05] Speaker 04: Let me address, unless I agree with counsel's statement about the diversity, I believe the parties are diverse and the record sites he cites are correct. [00:25:13] Speaker 04: Let me address the issue of plain error. [00:25:16] Speaker 04: Again, this is a situation where the district court, Sue Espante, ruled on an issue that neither party had advanced [00:25:22] Speaker 04: and is in fact, as conceded in their brief, incorrect, which is that the only way to get to a disgorgement remedy is through a statutory right. [00:25:31] Speaker 04: Again, the word disgorgement appears nowhere in Chapter 600A. [00:25:35] Speaker 04: They've acknowledged that the case we cite, Women's Federal Savings and Loan Act, that involved a breach of fiduciary duty claim, but regardless, not a statutory claim. [00:25:44] Speaker 04: It did allow for disgorgement. [00:25:46] Speaker 04: Let me address in, oh, on the merits, okay. [00:25:52] Speaker 04: Chatham claims that it was not using H&H's processes, but there's a conflict in the evidence about that. [00:26:00] Speaker 04: Mr. Bloom, the vice president of H&H, testifies at ER 61 and 70 in his application to the DEA that H&H has a very valuable and viable process, and they rely on that in their application. [00:26:14] Speaker 04: Then in the further excerpt. [00:26:16] Speaker 04: I'm sorry the supplemental excerpts of record Nope, I apologize the original excerpts of record of Five thirty nine through forty and five seventy one they affirm that there are no changes to their technical advances even after the settlement agreement finally [00:26:33] Speaker 04: For establishing trade secrets they say well that was just alleged in the complaint, but it's nowhere proved the party's settlement agree I'm sorry the party's NDA Specifically sets out that they the parties agree that these are trade secrets that they're valuable information And that's why the settlement sorry I keep saying the settlement the NDA specifically provides that money damages would not be a sufficient remedy for [00:26:56] Speaker 04: And that's why the contract provides for any other available, so all other remedies available at law or inequity. [00:27:02] Speaker 04: For that reason, we ask that the court reverse. [00:27:04] Speaker 04: Thank you, Your Honor. [00:27:05] Speaker 02: Very good. [00:27:05] Speaker 02: Thank you, gentlemen, for your argument. [00:27:07] Speaker 02: We appreciate it. [00:27:08] Speaker 02: The case of H&H Pharmaceuticals versus Chatham Chemicals is submitted. [00:27:14] Speaker 02: And the court stands adjourned for the week. [00:27:39] Speaker 01: The score for this session is 7.