Key Points

  • The Tenth Circuit affirmed the dismissal of the Rong defendants for lack of personal jurisdiction because the plaintiffs did not show that their injuries arose out of the defendants' Colorado contacts.
  • The court held that claims under the Defend Trade Secrets Act and the Colorado Uniform Trade Secrets Act sound in tort, so Colo. Rev. Stat. § 13-17-201 required a fee award after the Rule 12(b) dismissal.
  • The court held that a fee award entered after a Rule 54(b) certification is final and appealable even though claims against other defendants remain pending, adopting the Third Circuit's reasoning in Johnson v. Orr.
  • The court affirmed the $114,663.11 initial award and the $68,990.50 supplemental award, rejecting arguments that counsel's use of AI tools made the hours unreasonable and that the supplemental fees had been implicitly denied.
  • The court found the district court applied the wrong standard of review to the supplemental fee objections but held the error harmless.

A federal appeals court ruled on Oct. 30 that three Illinois defendants dismissed from a Colorado trade-secret lawsuit are entitled to more than $183,000 in attorneys' fees. The court held that Colorado's mandatory fee-shifting law covers misappropriation claims even when they are brought under federal and state trade-secret statutes.

A three-judge panel of the U.S. Court of Appeals for the Tenth Circuit affirmed the dismissal of John Qiang Rong, his wife Leigh Wang, and their Illinois limited liability partnership, Zyrcon Global Strategies LLP, for lack of personal jurisdiction. It also affirmed two fee awards totaling $183,653.61. Judge McHugh wrote the opinion for a panel that also included Judges Matheson and Federico.

The Colorado statute, Colo. Rev. Stat. § 13-17-201, requires a fee award when a tort action is dismissed on the defendant's motion before trial. The plaintiffs argued that their case was statutory at its core rather than a tort case, and the panel rejected that argument. It also held, for the first time in the circuit, that a fee award following a partial final judgment can be appealed while claims against other defendants remain pending.

The plaintiffs, Flux Drive Inc., Flux Drive LLC, Impact Engineering Inc., Tri-Tec Manufacturing LLC and Philip Corbin III, alleged that a group of individuals and companies conspired to steal their trade secrets and transfer them to a company in China that makes unauthorized knockoff products. They sued in the District of Colorado, where defendant Michael Troy Sparks, a senior design engineer for Flux Drive Inc. and Tri-Tec, lives.

The plaintiffs alleged that Rong approached Sparks around January 2020 and sent him a "Master Services Agreement" under which Sparks passed the trade secrets to PRD Technologies, a Chinese company, through Rong. The Rong defendants wired $23,000 to Sparks's Colorado bank account. Rong said in an affidavit that he only translated and relayed messages as a favor to a friend at PRD, and Wang said the money was a bridge loan that Sparks repaid in less than a month.

Specific personal jurisdiction over an out-of-state defendant requires both contacts aimed at the forum state and injuries that arise out of those contacts. The panel found the first requirement met. It cited Rong's repeated emails to Sparks, the $23,000 transfer, and Sparks's deposition testimony that Rong "was supposed to be a person that [he] would supposedly report to."

The plaintiffs failed on the second requirement, the panel held. The Master Services Agreement, Judge McHugh wrote, "makes no mention of Plaintiffs, Plaintiffs' technologies, or Mr. Rong." Even crediting the plaintiffs' evidence in full, the opinion said, "the evidence shows, at most, that Mr. Rong was knowledgeable about the project, communicated with Mr. Sparks about the Master Services Agreement, and acted on PRD's behalf." Nor did the plaintiffs show that the loan paid for the workstation allegedly used in the theft, or that the Rong defendants knew how Sparks would spend it.

The panel also held that the plaintiffs waived their argument that the district court should have held an evidentiary hearing by devoting "just two bullet-point paragraphs" to it in their brief.

On fees, the plaintiffs argued that their claims under the federal Defend Trade Secrets Act and the Colorado Uniform Trade Secrets Act were "the heart of the [C]omplaint," which made the action statutory. Under Colorado law, courts applying the fee statute to mixed claims ask whether the essence of the action is a tort. "But Plaintiffs conflate the source of the legal duties with the nature of the action," Judge McHugh wrote, noting that the statute does not distinguish common-law torts from statutory ones.

The opinion said that "courts have consistently recognized that misappropriation claims sound in tort, even when asserted via statute," and concluded that "the district court correctly determined that this action predominantly sounds in tort." The panel declined to consider arguments that the statute does not reach purely economic damages or is displaced or preempted by the trade-secret laws, because the plaintiffs never raised them below.

The panel upheld the full $114,663.11 initial award. The plaintiffs had argued that defense counsel should have billed fewer hours because they relied on artificial intelligence and other online research tools. The panel noted that such tools may reduce research time but that ethical rules still require lawyers to verify the cases they cite. It held that "Plaintiffs have not shown that defense counsel's use of AI rendered the hours that they actually expended unreasonable."

To reach the fee appeal at all, the panel adopted a 1990 Third Circuit decision, Johnson v. Orr. The district court had entered a partial final judgment for the Rong defendants under Federal Rule of Civil Procedure 54(b). "It would be anomalous to treat a collateral fee award flowing from an underlying merits judgment as non-final solely because other claims remain pending when the merits judgment itself has been certified as final and appealable," Judge McHugh wrote.

The panel also affirmed a supplemental award of $68,990.50 for fees the Rong defendants incurred after their first motion, including fees for litigating the fee dispute. It rejected the argument that the first ruling had implicitly denied those fees, holding that the district court never adjudicated them. The motion was timely because the 14-day deadline fell on Christmas Day and rolled to Dec. 26, 2025, the day it was filed. The district court applied the wrong standard of review, the panel found, but the error was harmless.

Steven J. Miller of The Miller Law Offices, PLC represented the plaintiffs. Christopher L. Ottele of Brownstein Hyatt Farber Schreck, LLP represented the Rong defendants.

The decision leaves the dismissal of the Rong defendants and both fee awards in place. The plaintiffs' claims against the other defendants remain pending in the district court.