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LS3, Inc. provided services to the U.S. government, primarily through the U.S. Department of Agriculture. Cherokee Nation Strategic Programs, L.L.C.; Cherokee Federal Solutions, L.L.C.; and Cherokee Services Group, LLC — also referred to as the Cherokee defendants — are competitors of LS3.
LS3 lost its bid for a USDA contract to Easy Dynamics. One of LS3’s business partners protested the award and as it proceeded, the government eventually awarded a short-term contract to the Cherokee defendants while the government resolved the dispute over the longer-term contract.
Twenty-two former LS3 employees — the individual defendants — signed an intellectual property, noninterference/nonsolicitation and nondisclosure agreement or an employment agreement. Both prohibited the employees from interfering with LS3’s existing or prospective business relationships.
In August 2020, Linda Evans, a manager for the Cherokee defendants, sent an email to LS3’s employees who had been working in support of a previous USDA contract, including the individual defendants, offering an opportunity to work on the short-term contract. The 22 individual defendants left LS3 to work for the Cherokee defendants.
LS3 filed a complaint, including claims for breach of contract and loyalty against the individual defendants, intentional interference with a contract against the Cherokee defendants, civil conspiracy against all defendants and misappropriation of trade secrets against all defendants in violation of Colorado’s Uniform Trade Secrets Act and the federal Defend Trade Secrets Act.
The defendants filed motions to dismiss, which the district court granted. LS3 appealed.
LS3 challenged the dismissal of its breach of loyalty claim, arguing the district court erred by considering Evans’ email, the email was hearsay and the court’s determination that LS3 had already lost the short-term contract when Evans sent the email was contrary to the amended complaint. The Cherokee defendants argued LS3 forfeited these arguments when it did not raise them in its opposition to the motions to dismiss.
According to the 10th Circuit Court of Appeals, LS3 didn’t preserve its argument that the district court’s considering Evans’ email was improper, nor did it contend in district court the email was hearsay. However, the circuit contended the district court erred by inferring from the email alone that LS3 had already lost the contract, reversing the district court’s dismissal of the breach of contract claim alleging a breach of the duty of loyalty.
The 10th Circuit also reversed the dismissal of LS3’s claims for intentional interference with contract and civil conspiracy to the extent those claims are derivative of LS3’s claims for breach of the duty of loyalty, following the same line of reasoning.
On all other counts, the 10th Circuit Court of Appeals affirmed the district court’s judgment and remanded the case for further proceedings.