Kuryakyn Holdings, LLC v. Ciro, LLC

242 F.Supp.3d 789

KURYAKYN HOLDINGS, LLC, Plaintiff,

v.CIRO, LLC, Thomas Rudd, Darron May, Ken Madden, and Christopher Lindloff, Defendants.

15–cv–703–jdp

United States District Court, W.D. Wisconsin.

Signed March 15, 2017

Paul Tadeusz Olszowka, Yeny Caterine Ciborowski, Christine Elizabeth Skoczylas, Barnes & Thorburg LLP, Chicago, IL, Todd G. Vare, Vare, Barnes and Thornburg, Indianapolis, IN, Kevin Dale Rising, Barnes & Thornburg LLP, Los Angeles, CA, for Plaintiff.

Cassandra B. Merrick, Christopher W. Madel, Jennifer Maria Robbins, Robins Kaplan LLP, Minneapolis, MN, for Defendants.

OPINION & ORDER

JAMES D. PETERSON, District Judge

After more than 25 years as the founder and president of plaintiff Kuryakyn Holdings, LLC, a motorcycle aftermarket parts design company, defendant Thomas Rudd resigned. Rather than simply retiring, Rudd helped his son start a competing motorcycle aftermarket parts company, defendant Ciro, LLC, and poach Kuryakyn's three main designers, defendants Darron May, Ken Madden, and Christopher Lindloff. Kuryakyn, displeased with the sudden loss of its designers and the simultaneous entrance of a new competitor on the market, brought suit against defendants, alleging that the individual defendants used Kuryakyn's trade secrets and other resources to benefit Ciro and that some of their actions occurred while they were still collecting a salary from Kuryakyn.

Kuryakyn's 18 claims are gradually being whittled down: Kuryakyn has already voluntarily dismissed one claim, and now moves to dismiss an additional nine. Dkt. 102. The eight active claims that remain are the subject of defendants' motion for summary judgment. Dkt. 69. The court will grant summary judgment in favor of defendants on seven of those claims. One claim will remain for trial: whether Rudd breached his fiduciary duty to Kuryakyn.

PRELIMINARY MATTERS

Before turning to defendants' summary judgment motion, the court must address Kuryakyn's motion to amend its complaint to dismiss counts II, V, IX, XI, XII, XIII, XV, XVI, and XVII with prejudice and assert new factual allegations in support of its copyright infringement claim. Although Kuryakyn did not file this motion until after defendants moved for summary judgment, defendants do not object to Kuryakyn's proposed amendments, so the court will grant Kuryakyn's motion. The court will direct defendants' summary judgment motion to the second amended complaint. Dkt. 102–1.

Defendants ask that the court order Kuryakyn to pay a portion of their accrued attorney fees and costs as a condition of dismissing its claims, contending that they are entitled to indemnification by Kuryakyn under Delaware law. The court declines to assess fees and costs against Kuryakyn at this stage of litigation, but defendants may renew their request in a formal motion when the court determines damages, attorney fees, and costs.

The court notes that Kuryakyn's second amended complaint includes a claim under Wis. Stat. § 100.18 for unfair trade practices, Count III, even though the court already dismissed this claim with prejudice. See Dkt. 51. The court will reaffirm that Count III has been dismissed with prejudice.

Thus, Kuryakyn's second amended complaint contains the following active claims:

Count I Copyright infringement against Ciro

Count IV State law trade secret misappropriation against all defendants

Count VI Breach of contract against Madden

Count VII Breach of contract against May

Count VIII Breach of contract against Lindloff

Count X Breach of fiduciary duty and duty of loyalty against Rudd

Count XIV Conspiracy to injure business against all defendants

Count XVIII Federal law trade secret misappropriation against all defendants

UNDISPUTED FACTS

The following facts are undisputed, except where noted.

In the 1980s, defendant Thomas Rudd founded Kuryakyn Holdings, Inc., a motorcycle aftermarket parts design company. In 2001, Rudd sold Kuryakyn to Motorsport Aftermarket Group, Inc. (MAG). MAG converted Kuryakyn Holdings, Inc., into Kuryakyn Holdings, LLC, a Delaware limited liability company. Kuryakyn remained in the business of designing and selling aftermarket motorcycle parts, and Rudd stayed on as Kuryakyn's president.

Defendants Darron May, Ken Madden, and Christopher Lindloff all worked for Kuryakyn as designers. They each entered into a written employee agreement with Kuryakyn.

In 2012, MAG and Kuryakyn explored the possibility of acquiring Klock Werks, another company that designs motorcycle parts. Rudd helped negotiate the acquisition, but the deal fell through. Afterwards, Rudd told MAG that he wanted to buy Klock Werks for his son, Aero Rudd. (For clarity, the court will refer to Thomas Rudd as "Rudd" and to his son as "Aero.") Rudd floated the idea of a business arrangement between MAG and Klock Werks under Aero's leadership. The parties dispute whether MAG rejected this idea or simply never accepted it. Rudd directed two Kuryakyn employees, Thomas Ellsworth and Bob Hinton, to work on the Klock Werks acquisition during business hours. But the deal fell through a few months later.

Later that year, Rudd began exploring other options for expanding Kuryakyn with DragonFire, another company owned by MAG. MAG asked Rudd to work with DragonFire to expand DragonFire's utility terrain vehicle (UTV) business and Kuryakyn's UTV aftermarket parts business. Rudd asked MAG to sell DragonFire to Aero. MAG neither rejected nor accepted the proposal, but directed Rudd to continue to explore the expansion of DragonFire's UTV business. Rudd then asked MAG to fund a new UTV company run by Aero under the MAG umbrella. MAG refused. Rudd suggested to MAG that Aero become a DragonFire distributor. MAG never rejected or accepted this proposal, either.

Meanwhile, Rudd and Aero were moving forward with plans to create a new UTV business. In April 2013, they met with Madden to discuss designing a snake logo for a new UTV brand. Madden emailed Rudd a "snake with tongue" design and met with Rudd at 5:00 p.m., after close of business, to discuss the design further.

Rudd liked the design and asked Ellsworth to see if "Venom" was available as a UTV company name under the MAG umbrella. Ellsworth oversaw trademark research on "Venom" at Kuryakyn's expense and eventually concluded that the name was unavailable. Rudd and Aero contemplated other ideas and eventually settled on "Ciro." Once again, Ellsworth oversaw trademark research at Kuryakyn's expense, which indicated that Ciro was available as a brand of UTV accessories and apparel. The parties dispute what "Ciro" was intended to represent at this point: Kuryakyn argues that Aero intended Ciro to be a UTV parts brand associated with Kuryakyn; defendants argue that Aero did not know exactly what Ciro would be, but hoped that it could be a DragonFire distributor for UTV parts. In July 2013, Rudd emailed Madden:

The name of Aero's new company is CIRO. Sure would appreciate it if you could now finalize the logo with Ciro in the mouth of the snake by early next week.

Dkt. 104–33, at 2. Madden responded the next week, sending Rudd a "white snake" design (below) and two variations on this design, one with a black background and one with a tongue.

Madden created these designs on his personal laptop using a program that he obtained from Kuryakyn. See Dkt. 97 (Madden Dep. 98:21–101:14). Rudd wrote Madden a check for $500 to pay for his work in creating the designs.¹ Aero reimbursed Rudd. Aero later wore a shirt embroidered with the white snake design at Kuryakyn's vendor stall at the August 2013 Sturgis Rally while displaying a UTV outfitted with DragonFire parts and distributing DragonFire marketing materials. Aero collected customer feedback about DragonFire at Sturgis, which Rudd forwarded to MAG. MAG continued to explore the expansion of DragonFire's UTV business. Rudd forwarded internal emails among MAG, DragonFire, and Kuryakyn and confidential business information regarding the UTV market to Rudd's personal email account,² as well as to Aero and to Rudd's wife, Pat Furlong.

By November 2013, Rudd had given up on the DragonFire/Kuryakyn UTV project. But he hadn't given up on Ciro. He and Furlong hired attorneys to form a limited liability company named "Ciro."

In December 2013, MAG forced Rudd to resign as president of Kuryakyn. MAG appointed Holger Mohr as president and offered Rudd the position of chairman. Rudd accepted MAG's offer of the chairman position on December 19, 2013. On December 27, 2013, and January 2, 2014, Rudd forwarded various emails and business documents from his business email account to his personal one. He also told Kuryakyn employees to pause the "megaphone muffler" design project, which he had instructed them to begin a few months earlier. He then bought the design drawings for the megaphone muffler project from Kuryakyn. The parties dispute whether Rudd was authorized to buy the designs. Kuryakyn later reimbursed Rudd for the designs and took them back. On January 7, 2014, Rudd told MAG that he was taking a vacation.

Soon after, Rudd asked Madden, Lindloff, and May, Kuryakyn's only designers, out to dinner. Aero attended, as well. At the dinner, Aero asked the three designers to work for his new company, Ciro. Madden decided within a few days to quit Kuryakyn and join Ciro. Rudd resigned from Kuryakyn on February 3, 2014. The parties dispute when Lindloff and May decided to join Ciro. By the end of February, Rudd was representing to others that Ciro would employ three designers, although Lindloff and May testified that they had not committed to leaving Kuryakyn for Ciro until May 2014. But even if they had not decided to join Ciro, they attended several more dinners with Rudd, Aero, and Madden between February and May at which they discussed plans for Ciro.

Ellsworth resigned from Kuryakyn on April 29 and began consulting for Ciro in May. Madden resigned from Kuryakyn on May 9, 2014. May followed him on May 23. Lindloff resigned on May 27, leaving Kuryakyn with only one product...