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Kuryakyn Holdings, LLC v. Ciro, LLC

United States District Court, W.D. Wisconsin

March 15, 2017

KURYAKYN HOLDINGS, LLC, Plaintiff,
v.
CIRO, LLC, THOMAS RUDD, DARRON MAY, KEN MADDEN, and CHRISTOPHER LINDLOFF, 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.

         IMAGE OMITTED

         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.

         IMAGE OMITTED

         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 ...


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