Flux Drive v. Rong — Colorado Contacts Were Not Tied to Alleged Trade-Secret Theft

Background

Flux Drive and related companies accused several individuals and businesses of conspiring to steal technical information for a high-power adjustable-speed drive and transfer it to a Chinese manufacturer producing unauthorized knockoffs. Their complaint asserted claims under the federal Defend Trade Secrets Act, the Colorado Uniform Trade Secrets Act, and related state-law theories.

The Colorado lawsuit included Illinois residents John Rong and Leigh Wang and their Illinois partnership, Zyrcon Global Strategies. Flux Drive alleged that Rong helped arrange an agreement under which a Colorado engineer supplied the information and that Rong, Wang, and Zyrcon sent the engineer a $23,000 bridge loan. The district court dismissed those defendants for lack of personal jurisdiction. It then awarded them $114,663.11 in attorneys’ fees under a Colorado statute and later approved supplemental fees. Three appeals were consolidated.

The Court’s Holding

The Tenth Circuit affirmed all three orders. Writing for the panel, Judge Carolyn McHugh explained that specific personal jurisdiction requires more than conduct aimed at the forum state: the plaintiff’s injury also must arise out of or relate to that forum-directed conduct.

The record could support purposeful direction toward Colorado. Rong communicated with the Colorado engineer, transmitted the services agreement, and the defendants sent money to the engineer’s Colorado account. But Flux Drive did not connect those acts to the alleged theft. It did not identify any term in the agreement that enabled misappropriation, evidence that the loan paid for equipment used to take the trade secrets, or facts showing that the lenders controlled or knew how the funds would be used. Allegations that the defendants provided financing to aid concealed activity were too conclusory to supply the missing link.

The panel also rejected the request for an evidentiary hearing because the plaintiffs did not explain what additional evidence they expected to obtain or how it would cure the jurisdictional gap. It upheld the fee awards as well. The court treated the fee order as appealable after the underlying dismissal was certified as final, held that Colorado’s mandatory fee-shifting rule applied to the predominantly tort-based action dismissed under Rule 12(b), and found no preserved basis to disturb the lodestar calculation or supplemental award.

Key Takeaways

• In a trade-secret case, allegations that an out-of-state defendant communicated with or funded a forum resident do not establish specific jurisdiction unless the complaint and evidence connect those contacts to the alleged misappropriation.
• Labels such as “conspiracy,” “financing,” or “concealment” cannot replace facts explaining how the forum-directed act caused or facilitated the theft.
• A Rule 12(b) dismissal of tort-centered claims in federal court can trigger Colorado’s mandatory defense-fee statute, creating substantial financial exposure before the merits are reached.

Why It Matters

Trade-secret schemes often span several states or countries, but a broad narrative about coordinated conduct does not automatically permit suit against every participant in the plaintiff’s chosen forum. Companies pursuing multi-defendant cases should plead and preserve evidence tying each defendant’s forum contacts to the acquisition, use, or disclosure of the protected information.

The decision also highlights the cost of getting forum selection wrong. Here, failure to establish personal jurisdiction did more than remove three defendants from the Colorado case; it produced a six-figure fee award and additional appellate-fee litigation.

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