Court Opinions: 10th Circuit Court of Appeals Opinion for April 11

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

DIRTT Environmental Solutions, et al. v. Falkbuilt, et al. 

DIRTT Environmental Solutions, Inc., a Colorado corporation, DIRTT Environmental Solutions Ltd., its Canadian parent, and Falbuilt Ltd. and Falkbuilt, Inc., its U.S.-based subsidiary, have litigated the issue presented in this appeal in one form or another since May 2019. Because of this, the 10th Circuit Court of Appeals limited its discussion of the facts and procedural history of this case solely to those necessary to resolve the issue.

A 10th Circuit Court of Appeals panel out of Salt Lake City, Utah, addressed a question of first impression: Can a district court appropriately dismiss part of an action pursuant to the forum non conveniens doctrine while allowing the other part to proceed before it? 

The facts of this case — as alleged in DIRTT’s first amended complaint — concern the litigious aftermath of a bitter corporate divorce. 

DIRTT operates a business specializing in the design and construction of prefabricated interior spaces and uses proprietary software in its design process. DIRTT was founded in 2003 by Mogens Smed and two others. For years, DIRTT enjoyed a fruitful relationship with Smed, who served as DIRTT’s CEO. That changed in 2018 when, for reasons that remain unclear based on the record, DIRTT decided to part ways with Smed. 

Following his termination, Smed established his own company, Falkbuilt Ltd. and Falkbuilt, Inc., its U.S.-based subsidiary. Like DIRTT, Falkbuilt’s business also focuses on producing prefabricated interior spaces. Falkbuilt relies on a network of affiliates that are invested in Falkbuilt itself to facilitate the conduct of its business. DIRTT alleged Smed remained heavily influenced by his time at DIRTT and that he continued “to identify himself as a ‘DIRTTbag,’ a phrase used by DIRTT employees to describe themselves and express pride in adhering to DIRTT’s philosophy,” even after his departure from the firm.

According to DIRTT, Smed set up Falkbuilt to directly compete with it. To this effect, DIRTT claims Smed recruited its employees and affiliates not only to join his new business but to bring DIRTT’s proprietary information with them. In this regard, DIRTT’s allegations as they pertain to Lance Henderson, a former DIRTT employee, and his wife Kristy Henderson, a former employee of a DIRTT affiliate, are particularly relevant. Lance Henderson worked as a Utah sales representative for DIRTT from 2009 until 2019. As part of his employment with DIRTT, Lance Henderson acknowledged receipt of DIRTT’s confidentiality policy, which prohibited him from, amongst other things, retaining DIRTT’s sensitive data.

Unbeknownst to DIRTT, Lance Henderson had a felony conviction for defrauding investors of between $6-8 million. Smed apparently knew about Lance Henderson’s conviction but didn’t bring it to DIRTT’s attention. DIRTT alleged it first learned about Lance Henderson’s past after Smed’s departure when the State of Utah sent it an administrative garnishment order. Sometime thereafter, Lance Henderson decided to leave DIRTT and “either made contact or accelerated plans with Mr. Smed and Falkbuilt to assist them in launching a business in Utah.” Lance Henderson then uploaded 35 gigabytes of DIRTT’s data onto his personal drives at Smed’s behest or direction, according to the court opinion. 

DIRTT learned of this upload one week after it took place, and Lance Henderson admitted to uploading the information but denied any wrongdoing or nefarious intent. Less than one month before Lance Henderson’s departure, Kristy Henderson incorporated Falk Mountain States, LLC to serve as Falkbuilt’s Utah affiliate. When Lance Henderson ultimately parted ways with DIRTT in August 2019, he informed them he would be starting a construction business even though he intended to work for Falkbuilt. Smed allegedly recruited numerous other DIRTT employees to participate in similar schemes, although those former employees are not subject to this suit.

DIRTT began its legal campaign against Falkbuilt and Smed in May 2019 — before Lance Henderson’s departure — by filing suit against them for breach of contract in Canadian court. DIRTT expanded its legal campaign after it learned about Lance Henderson’s apparent misappropriation of its data by filing the instant lawsuit against Falkbuilt Ltd., the Hendersons and FMS. DIRTT’s original complaint alleged various theft of trade secret claims under both federal and state law as well as a breach of contract claim against Lance Henderson.

DIRTT also sought a preliminary injunction. Falkbuilt responded by filing a counterclaim, which DIRTT moved to dismiss on forum non conveniens grounds. The parties then engaged in a series of protracted discovery disputes. DIRTT subsequently amended its complaint in October 2020. The first amended complaint (amongst other things) added new parties — DIRTT Ltd. as a plaintiff as well as Falkbuilt, Inc. and Smed as defendants — changed DIRTT, Inc.’s principal place of business from Canada to the U.S. and refined its allegations to focus on harm suffered in the U.S. Falkbuilt and Smed moved to dismiss DIRTT’s first amended complaint, based on forum non conveniens. The Hendersons and FMS refused to join this motion or consent to Canadian jurisdiction — the alternative forum proposed in Falkbuilt’s motion to dismiss.

In March 2021, the district court held a hearing on DIRTT’s motion to dismiss Falkbuilt’s counterclaim for forum non conveniens. The district court granted that motion. Thereafter, in May 2021, the district court held a hearing on Falkbuilt and Smed’s motion to dismiss DIRTT’s first amended complaint. After hearing arguments from the parties, the district court issued a preliminary ruling from the bench. In doing so, the district court went through each factor of the forum non conveniens analysis and ultimately granted Falkbuilt and Smed’s motion. 

DIRTT appealed that ruling. DIRTT also filed a motion for relief from judgment based on a series of emails disclosed by Falkbuilt during discovery. The district court denied that motion in a written order. DIRTT appealed that ruling as well and the 10th Circuit consolidated the appeals for briefing and oral argument. 

But because the circuit’s resolution of the forum non conveniens issue disposed of both appeals, it focused its analysis on DIRTT’s first appeal.

Reasoning that the forum non conveniens doctrine is fundamentally concerned with the convenience of the venue — and relatedly the efficient administration of justice — the appeals court concluded a district court can’t dismiss part of an action pursuant to the forum non conveniens doctrine while allowing the other part to proceed before it.

The court held that a district court clearly abuses its discretion when it elects to dismiss an action as to several defendants under a theory of forum non conveniens while simultaneously allowing the same action to proceed against other defendants. Exercising jurisdiction the 10th Circuit panel reversed the district court’s judgment.

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