The opinion
UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
GWACS ARMORY, LLC, )
)
Plaintiff, )
)
v. ) Case No. 20-CV-0341-CVE-SH
) BASE FILE
KE ARMS, LLC, RUSSELL ) Consolidated with:
PHAGAN, SINISTRAL SHOOTING ) Case No. 21-CV-0107-CVE-SH
TECHNOLOGIES, INC., )
BROWNELLS, INC., and )
SHAWN NEALON, )
)
Defendants, )
)
and )
)
KE ARMS, LLC, )
)
Plaintiff, )
)
v. )
)
GWACS ARMORY, LLC, GWACS )
DEFENSE INCORPORATED, )
JUD GUDGEL, RUSSELL ANDERSON, )
DOES I through X, and ROE )
CORPORATIONS I through X, )
)
Defendants. )
OPINION AND ORDER
Now before the Court are the following motions: Plaintiff’s Motion for Order Dismissing
Claims against Defendant Shawn Nealon with Prejudice (Dkt. # 113); Defendant KE Arms, LLC’s
Motion for Summary Judgment (Dkt. # 117); Defendant Brownells Inc.’s Motion for Summary
Judgment (Dkt. # 118); Defendant Shawn Nealon’s Motion for Summary Judgment (Dkt. # 119);
Defendants Russell Phagan and Sinistral Shooting Technologies, LLC’s Motion for Summary
Judgment (Dkt. # 120); Counterclaim Defendant’s Motion for Summary Judgment & Brief in
Support (Dkt. # 121); and Defendants’ Motion for Spoliation Sanctions (Dkt. # 177). Plaintiff
GWACS Armory, LLC (GWACS) argues that its communications with defendants KE Arms, LLC
(KEA) and Brownells, Inc. (Brownells) were privileged, and GWACS seeks summary judgment on
KEA’s counterclaims. Dkt. # 121. GWACS also seeks leave to dismiss its claims against Shawn
Nealon with prejudice to refiling. Dkt. # 113. Each defendant seeks summary judgment on
GWACS’ claims against them. Dkt. ## 117, 118, 119, 120. Defendants argue that GWACS did not
disclose to defendants any information pursuant to non-disclosure agreements (NDAs) that was
proprietary or confidential, and defendants request summary judgment on GWACS’ breach of
contract claims. Defendants also argue that GWACS does not possess any intellectual property or
trade secrets, and they assert that they cannot be held liable for misappropriation of intellectual
property or trade secrets.
I.
In the early 2000s, Shawn Nealon formed a company called Cavalry Arms Corporation
(Cavalry), and Cavalry’s main product was a semi-automatic rifle called the CAV-15. Dkt. # 123,
at 2. The CAV-15 rifle was designed by Nealon and other employees of Cavalry, including Russell
Phagan, and Phagan subsequently became the vice president of Cavalry. Id. One of the key features
of the CAV-15 rifle was the lower receiver, which was made with a polymer instead of steel or
aluminum, and this made the CAV-15 somewhat lighter than other similar rifles. Id. Another
feature of the lower receiver was that it was monolothic, meaning that the stock, grip, and magazine
were a single piece. Id. Much of the information related to the design and manufacturing of the
CAV-15 was published on Cavalry’s website or otherwise disclosed to customers, because
2
customers expressed concern about the use of a polymer in manufacturing components for a rifle.
Id. At some point, the information was no longer available on the websites on which the material
was published, and certain documents or pictures were privately kept by Phagan. Dkt. # 143-4, at
9-15.
The CAV-15 lower polymer receiver was later renamed the MKI, and Cavalry developed
an improved version marketed as the MKII. Dkt. # 123, at 2. Cavalry later produced a prototype
for a lower polymer receiver known as the MKIII, but Cavalry never manufactured or produced the
MKIII for distribution. Id. Cavalry did not obtain a patent, trademark, or copyright for the MKI,
MKII, or MKIII. In 2010, Cavalry stopped manufacturing the MKI, MKII, and MKIII receivers,
surrendered its federal firearms license, and began to sell off its assets. Id. at 3. On March 3, 2010,
Cavalry and Sinistral Shooting Technologies, Inc. (SST) entered an asset purchase agreement for
the sale of the following assets:
(a) One (1) CAV-15 MKII cores and cavities;
(b) One (1) CAV-15 MKI cores and cavities;
(c) One (1) CAV-15 mold base;
(d) One (1) CAV-15 linear vibration welding resin base fixtures;
(e) all of Seller’s CAV-15 drilling fixtures; all CAV-15 specific hand tools; all CAV-
15 specific nuts, bolts, screws, roll pins; all CAV-15 front and rear pivot; take down
pins; all CAV-15 serial number tags;
(f) all licenses for the above described assets to the extent that they are assignable,
including those set forth on Schedule 4.1;
(g) all records required to be kept on the above described assets pursuant to parts
447, 478, and 479 of C.F.R. title 27.
3
Dkt. # 123, at 14-15. SST was owned by Phagan at the time of the transaction, and Phagan states
that he is currently the controlling member of SST. Dkt.# 124, at 2. Cavalry agreed that it had
“title” to the assets being sold, but Cavalry made no representation that it possessed any protected
or exclusive intellectual property rights to the assets. Id. at 16-17. Phagan testified in his deposition
that Nealon also gave him “armors, tools, and other ancillary items related to firearms production
along with the prints to the mold and a CD of CAD1 files,” but the CAD files were not expressly part
of the sale. Dkt. # 143-2, at 2. SST and GWACS subsequently entered an asset purchase agreement
for the sale of the following assets:
1. Van Don 300 Press HT Series Model 300 HT 14-2865 1996 with Pathfinder 4500
Controller;
2. Con Air SC30 Plastic Dryer with hopper – Serial Number 80105;
3. Branson 90 Series Linear Vibration Welder Model VW2 Serial Number
96R523769;
4. Take Down Pin Sets (1,500+);
5. Serial number tags (1,000+);
6. CAD drawings, design prints to the molds, including any and all intellectual
property (“IP”) related thereto;
7. Take Down Pins specifications;
8. Miscellaneous tools and equipment to manufacture, market and sell the Lowers.
1 The parties use the acronym “CAD” when referring to certain designs or drawings of firearm
components. The parties do not define this term but the Court assumes that the parties are
referring to designs or drawings made using “computer-aided design.” For consistency with
the summary judgment record, the Court will also use the acronym “CAD” in this Opinion
and Order. In some instances, the parties refer to “CAM files,” which appears to be a
reference to “computer-aided manufacturing.”
4
Dkt. # 124-4, at 10. Nealon was aware of this transaction and sent GWACS a letter congratulating
it on the purchase on the letterhead of a trade name for his new entity, Cavalry Medical LLC
(Cavalry Medical). Dkt. # 123, at 64.
In February 2013, Phagan began working for GWACS as a sales representative, and the
scope of his work was governed by a non-exclusive independent contractor sales representative
agreement (Dkt. # 124-5). Phagan later worked for a competitor of GWACS, KEA, while KEA was
marketing a lower receiver known as the KE-15. Dkt. # 124, at 11. The KE-15 was either forged
or billet, with the billet version having a flared magazine. Id. On June 15, 2015, KEA entered a
mutual NDA with GWACS to allow the parties to “evaluate the feasibility of [a] business
relationship,” and they anticipated exchanging trade secrets or proprietary information as part of this
process. Dkt. # 124-7, at 2. The agreement defined “proprietary information” as information
disclosed by one party to another:
(i) that is marked “Proprietary” or (ii) that relates to the business of the Discloser or
the Discloser’s affiliates, including without limitation, trade secrets, know-how, data,
operations, records, finances, assets, technology, software, research, inventions,
future products, customer information, or business development plans.
Id. Any proprietary information exchanged pursuant to the agreement could not be disclosed to
third-parties for five years after the effective date of the agreement. Id. Even if one party marked
information as proprietary, the agreement states that proprietary information does not include
information which:
(a) At the time of disclosure was already in the possession of the Receiving Party;
(b) Is independently made available to the Receiving Party by a third party not
bound directly or indirectly by a non-disclosure obligation to the Disclosing Party;
(c) Is in the public domain; or
(d) Is independently developed by the Receiving Party without reference to
Proprietary Information received from the Disclosing Party.
5
Id. at 3. The NDA also recognizes that the parties may offer competing products on the marketplace,
and competition was not prohibited as long as the parties complied with their obligations under the
agreement. Id. Brownells entered two NDAs with GWACS. The first NDA was executed in May
2013, and the second NDA was executed in January 2016. Dkt. # 122, at 5-8; Dkt. # 122, at 9-12.
SST entered NDAs with GWACS, the first of which was executed in October 2011 and the second
of which was executed in February 2013. Dkt. # 124, at 6. 9. The NDAs were signed by Phagan
on behalf of SST. Dkt. # 124-3, at 3; Dkt. # 124-6, at 3.
Nealon claims that, in 2016, he found a box containing a thumb drive and various firearms
“blue prints” at his house, but he did not know the contents of the thumb drive and he lacked the
software to open it. Dkt. # 123, at 4. Nealon states that he did not believe that the thumb drive
contained any information that could be considered protected intellectual property, because he had
publicly shared anything that might have been treated as proprietary information on the internet or
directly to firearms enthusiasts or firearms businesses. Id. On February 25, 2016, Calvary Medical
sold two boxes of blueprints and a thumb drive containing “assorted CAD/CAM files” to KEA. Id.
KEA claims that it began developing an improved version of the KE-15 aluminum rifle, and
the new rifle would include a monolithic polymer lower receiver instead of an aluminum receiver.
Dkt. # 124, at 14. Phagan states that KEA used the CAM files for the KE-15 to develop the new
lower receiver, known as the KP-15, and Phagan states that KEA also consulted outside experts to
convert the KE-15 aluminum receiver into the KP-15 polymer receiver. Id. at 14-15; Dkt. # 124-33.
GWACS asserts that KEA used the CAV-15 design files to create the new receiver, and GWACS
further asserts that KEA’s witnesses have falsely claimed to have developed the new receiver from
scratch. Dkt. # 143, at 5; Dkt. # 143-14, at 17-20. GWACS also claims that KEA used information
6
produced by GWACS pursuant to the parties’ NDA to develop the new receiver. In particular,
GWACS sent an investment packet to KEA disclosing that GWACS was seeking financing to begin
production of a new version of the MK-III and MK IV, and GWACS claimed that it had improved
its manufacturing techniques to reduce production costs. Dkt. # 143-11. GWACS also claims that
its new models would have features that were not otherwise available on the marketplace, such as
an adjustable butt stock and an integrated single point sling mount. Id. at 5-6. On July 10, 2018,
GWACS made a public disclosure that it was unable to manufacture any of its CAV-15 products and
it was “virtually sold out” of MK II receivers, and it announced that it was finalizing the design of
the MK III that incorporated features recommended by “Russell Phagan aka SinistralRifleman.com.”
Dkt. # 124-54.
In 2017, Karl Kasarda, the owner of InRange LLC (InRange), began designing a new rifle
for the What Would Stoner Do (WWSD) project, using products from various firearms
manufacturers to assemble a complete rifle. Dkt. # 102-5, at 1-2. GWACS initially supplied the
lower polymer receiver and KEA supplied the trigger and safety selector. Id. at 2. Brownells
initiated discussions around April 2018 with InRange about marketing and distributing the WWSD
rifle, and a key issue for production of the rifle was whether the suppliers could meet the demand
for the necessary parts. Id. at 4. After GWACS had publicly disclosed on its website that it was
unable to produce more MK II receivers, Brownells offered to lease or rent GWACS’ MK II molds
to produce the receivers for the WWSD rifle, but GWACS told Brownells that “having the molds
get out of their facility is a non-starter.” Dkt. # 142-2, at 5-7; Dkt. # 143-25, at 1. GWACS
proposed to Brownells that it could provide a price for retooling the existing MK II molds, and
Brownells forwarded this proposal to Phagan. Dkt. # 143-26. However, the evidence provided by
7
the parties does not show that any agreement was reached concerning use of or retooling GWACS’s
MK II molds. KEA designed a new lower polymer receiver and provided pricing information to
Brownells in 2019, and KEA claims that the new receiver, known as the KP-15, was essentially the
same as KEA’s existing KE-15, but was made out of a polymer instead of aluminum. Dkt. # 124,
at 14; Dkt. # 143-27.
On April 7, 2020, Russell Anderson, GWACS’ sales and marketing director, sent a cease and
desist letter to KEA alleging that KEA was “attempting to develop a GWACS CAV-15 M III in
direct conflict with our intellectual property rights.” Dkt. # 122, at 15. Anderson stated that
GWACS purchased all molds, equipment, and intellectual property from Cavalry for the MK II and
MK III and that GWACS owns the exclusive rights to these materials, and Anderson claimed that
GWACS shared this information with KEA pursuant to an NDA in 2015. Id. Anderson demanded
that KEA cease and desist the manufacture and marketing of its product that allegedly bore a
likeness to the MKII and MKIII that was the exclusive intellectual property of GWACS, but
Anderson stated that GWACS would be willing to discuss a licensing arrangement with KEA. Id.
Anderson concluded by threatening that GWACS would be forced to take legal action if the parties
could not quickly work out a licensing agreement. Id. GWACS did not receive a response from
KEA, and it re-sent the e-mail to KEA and copied Paul Levy of Brownells on the e-mail. Dkt. #
121-1.
On July 15, 2020, GWACS filed this case alleging breach of contract claims against KEA,
SST, and Brownells (first, eighth, and ninth causes of action). GWACS also alleges claims for
misappropriation of trade secrets and intellectual property against KEA, Phagan, and Nealon (second
and sixth causes of action); and a claim of breach of the implied covenant of good faith and fair
8
dealing against KEA, Phagan, SST, and Brownells (seventh cause of action). KEA filed
counterclaims against GWACS and other related entities and persons for breach of the implied
covenant of good faith and fair dealing (second claim), interference with prospective economic
advantage (third claim), business disparagement (fourth claim), and deceptive trade practices and
unfair competition (fifth claim). Dkt. # 49. KEA also seeks a declaratory judgment (first claim) that
it complied with the NDA when it developed its lower polymer receiver. Id. at 11-12. KEA filed
its own lawsuit against GWACS and other defendants in the United States District Court for the
District of Arizona, and the parties filed competing motions to transfer or stay the cases. This Court
granted GWACS’s motion to stay this case pending a decision by the Arizona court as to whether
it would exercise jurisdiction over KEA’s claims. Dkt. # 32. The Arizona court applied Arizona
law and determined that KEA’s tort claims against GWACS were barred by the absolute privilege
applicable to statements made pursuant to private litigation. Dkt. # 34-1, at 11-14. The Arizona
court also declined to exercise jurisdiction over KEA’s declaratory judgment claim, and transferred
KEA’s remaining claim for breach of the covenant of good faith and fair dealing to this Court for
further proceedings. GWACS has filed a stipulation of dismissal as to its claims for trademark
infringement (third claim), trade dress infringement (fourth claim), and copyright infringement (fifth
claim). Dkt. # 81. KEA has filed a stipulation of dismissal as to its counterclaims against GWACS
Defense Incorporated, Jud Gudgel, and Anderson, but its counterclaims against GWACS remain
pending. Dkt. # 99. The Court denied GWACS’ motion to dismiss KEA’s counterclaims for
interference with prospective economic advantage, business disparagement, and deceptive trade
practices and unfair competition, and the Court also denied GWACS’ request to dismiss without
prejudice its claims against Nealon. Dkt. # 112.
9
Each party has filed a motion for summary judgment, and GWACS has filed a motion to
dismiss its claims against Nealon with prejudice. Based on the dismissal of claims and Court
rulings, GWACS’ remaining claims are its breach of contract claims against KEA, SST, and
Brownells (first, eighth, and ninth causes of action), misappropriation of trade secrets against KEA,
Phagan, and Nealon (second cause of action), misappropriation of intellectual property against KEA,
Phagan, and Nealon (sixth cause of action), and breach of the implied covenant of good faith and
fair dealing against all defendants (seventh cause of action). GWACS has renewed its motion to
dismiss its claims against Nealon, and GWACS seeks leave to dismiss its claims against Nealon with
prejudice to refiling. Dkt. # 113. Defendants have filed motions for summary judgment as to all of
the claims asserted against them, and defendants have also filed a motion to sanction GWACS for
failing to disclose evidence of its voluntary disclosure of alleged proprietary information or trade
secrets to third parties. Dkt. # 177.
II.
Defendants argue that GWACS intentionally failed to produce discovery materials
concerning GWACS’ voluntary disclosure of materials to third-parties that it now claims are
proprietary information or trade secrets. Dkt. # 177, at 3-4. Defendants request that the Court
sanction GWACS and dismiss GWACS’ claims for misappropriation of trade secrets and breach of
contract. Id. at 4. GWACS responds that defendants did not actually request the evidence that they
now claim was not produced in pretrial discovery, and the alleged proprietary information or trade
secrets contained in the new evidence is not the same proprietary information or trade secrets that
is the subject of GWACS’ claims. Dkt. # 182. GWACS further argues that the defendants were not
10
prejudiced by the untimely disclosure of the new evidence and sanctions are not appropriate for the
failure to produce the evidence in pretrial discovery.
The evidence at issue concerns the communications of GWACS’ vice president of sales,
Michel “Shel” Jones with third parties who requested information about GWACS’ products. KEA
made a request for production of “all of your communications in Native Format with Shel Jones
concerning the CAV-15 during the relevant period.” Dkt. # 178-2. GWACS refused to provide any
discovery in response to this request on the ground that the request was “overly broad” and “unduly
burdensome.” Id. at 5. Defense counsel asked GWACS to withdraw its objections to numerous
discovery requests, and GWACS subsequently agreed to provide some documents responsive to
KEA’s discovery requests. Dkt. # 178-5, at 4. The discovery cutoff was June 6, 2022 and the
parties filed their dispositive motions on July 18, 2022. On July 19, 2022, KEA was contacted by
a former customer of GWACS, Kenneth King, who was asking for information about CAV-15
receiver, and King produced a photograph of the internal workings of the lower receiver that had
been provided to him by Jones. Dkt. # 178-6, at 2; Dkt. # 179-1. Defense counsel immediately sent
a letter to GWACS’ counsel seeking an explanation why GWACS failed to disclose Jones’
communications with King, and defense counsel asked GWACS to identify any other similar
communications relating to the CAV-15 receiver. Dkt. # 178-6. GWACS failed to respond to the
letter, and defendants subsequently learned of eight additional persons who communicated with
Jones about technical issues or specifications of the CAV-15 receiver.
There is a general rule that the bad faith or intentional destruction of evidence relevant to an
issue at trial gives rise to an inference that the evidence would have been unfavorable to the party
responsible for its destruction. Aramburu v. Boeing Co., 112 F.3d 1398, 1407 (10th Cir. 1997).
11
Sanctions for spoliation of evidence are appropriate when “(1) a party has a duty to preserve
evidence because it knew, or should have known, that litigation was imminent, and (2) the adverse
party was prejudiced by the destruction of the evidence.” Burlington Northern and Santa Fe Ry. Co.
v. Grant, 505 F.3d 1013, 1032 (10th Cir. 2007). “Mere negligence in losing or destroying records
is not enough because it does not support an inference of consciousness of a weak case.” Turner v.
Public Service Co. of Colorado, 563 F.3d 1136, 1150 (10th Cir. 2009). District courts have broad
discretion when crafting an appropriate sanction for spoliation of evidence, and the sanctions can
include striking a witness, the exclusion of evidence, an adverse jury instruction, on “in extreme
circumstances,” the dismissal of claims. Helget v. City of Hays, Kansas, 844 F.3d 1216, 1226 (10th
Cir. 2017).
Defendants have not raised a true spoliation claim and this is a garden-variety discovery
dispute that the parties should have resolved without resort to a motion for sanctions. Defendants
argue that GWACS failed to produce evidence of third-party communications with Jones, but
defendants have not accused GWACS of destroying evidence. The Court agrees with defendants
that the withheld information was requested in discovery, and GWACS’ claim that defendants failed
to request the evidence is meritless. Defendants expressly requested that GWACS “[p]roduce all
of your communications in Native Format with Shel Jones concerning the Cav-15 during the
relevant time period.” Dkt. # 178-2, at 5. Jones’ communications with customers concerning design
and pricing information about the CAV-15 certainly fell within the scope of this discovery request,
and GWACS’ boilerplate objection that the request was “overly broad” was insufficient to preserve
any objection to this discovery request. Grubaugh v. CSAA General Ins. Co., 2018 WL 445108
(N.D. Okla. Jan 16, 2018) (boilerplate objections that discovery requests are “vague” or “overly
12
broad” do not constitute a response to a discovery request, and the party intending to assert such a
request must contact opposing counsel in an effort to narrow the discovery request); Howard v.
Segway, Inc., 2013 WL 869955 (N.D. Okla. Mar. 7, 2013) (boilerplate objections to discovery
requests can constitute waiver of the responding party’s right to object). In this case, defendants
received the information it requested in discovery from third-parties, and the evidence shows that
GWACS’ counsel consistently refused to meet with defense counsel after it came to light that
GWACS withheld relevant evidence in discovery. The Court finds that it is a sufficient sanction that
the Court will consider the evidence provided in defendants’ supplemental filings and declarations
(Dkt. ## 178, 179, 180, 187, 188) when ruling on the pending motions, and defendants may use this
evidence if the case proceeds to trial. However, the Court declines to impose the sanctions requested
by defendants, such as dismissal of claims or an adverse inference against GWACS, and defendants’
motion for spoliation sanctions (Dkt. # 177) is denied.
III.
All defendants seeks summary judgment on GWACS’ claims against them. KEA argues that
GWACS does not actually possess any intellectual property or trade secrets, and GWACS’ claims
of misappropriation of intellectual property or trade secrets are meritless. KEA also argues that it
did not breach the parties’ NDA, because GWACS did not disclose anything that would qualify as
proprietary information as that term is defined in the NDA. GWACS argues that it is entitled to
summary judgment on KEA’s counterclaims on the basis that GWACS’ cease and desist letter was
made pursuant to a litigation privilege, and KEA’s counterclaims are barred as a matter of Oklahoma
law. GWACS also argues that KEA has not come forward with evidence that it suffered any harm
as a result of Brownells’ receipt of the cease and desist letter.
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A.
Summary judgment pursuant to Fed. R. Civ. P. 56 is appropriate where there is no genuine
dispute as to any material fact and the moving party is entitled to judgment as a matter of law.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986); Kendall v. Watkins, 998 F.2d 848, 850 (10th Cir. 1993). The plain language of
Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon
motion, against a party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of proof at trial.
Celotex, 477 U.S. at 317. “Summary judgment procedure is properly regarded not as a disfavored
procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are
designed ‘to secure the just, speedy and inexpensive determination of every action.’” Id. at 327.
“When the moving party has carried its burden under Rule 56(c), its opponent must do more
than simply show that there is some metaphysical doubt as to the material facts. . . . Where the
record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there
is no ‘genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87 (1986) (citations omitted). “The mere existence of a scintilla of evidence in support of the
plaintiff’s position will be insufficient; there must be evidence on which the [trier of fact] could
reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. In essence, the inquiry for the Court
is “whether the evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law.” Id. at 250. In its review,
the Court construes the record in the light most favorable to the party opposing summary judgment.
Garratt v. Walker, 164 F.3d 1249, 1251 (10th Cir. 1998).
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B.
Before reaching the parties’ motions for summary judgment, the Court will consider
GWACS’ request for leave to dismiss its claims against Nealon with prejudice. Dkt. # 113.
GWACS states that it deposed Nealon, and it believes that “Nealon had likely unintentionally
disclosed [p]laintiff’s trade secrets and intellectual property . . . when he sold the same to Phagan
and KEA.” Id. at 2. GWACS contacted defense counsel and offered to dismiss its claims against
Nealon with prejudice, but GWACS states that the parties were unable to come to an agreement on
the issue. Id. at 3. Nealon argues that GWACS should be permitted to dismiss its claims against
him only if GWACS dismisses the claims with prejudice and he receives an award of attorney fees.
Dkt. # 127, at 2. In the alternative, he argues that the Court should defer a ruling on GWACS’
motion to dismiss until the Court rules on Nealon’s motion for summary judgment. Id.
GWACS previously sought leave to dismiss its claims against Nealon without prejudice and
without any other conditions. The Court denied GWACS’ motion (Dkt. # 84) primarily because
GWACS offered only a vague explanation for seeking leave to dismiss its claims against Nealon.
Dkt. # 112, at 14. It also appeared that Nealon was likely to file a motion for summary judgment,
and that GWACS was seeking to avoid a ruling on a dispositive motion. Id. at 15. The Court did
not give significant weight to Nealon’s argument that he had incurred attorney fees due to the filing
of GWACS’ claims, because there was evidence suggesting that Nealon was not personally
responsible for attorney fees or costs associated with this litigation. Id. at 13. The Court denied
GWACS’ motion with leave to refile a motion to dismiss with prejudice its claims against Nealon.
Id. at 15.
15
Under Fed. R. Civ. P. 41(a)(2), “an action may be dismissed at the plaintiff’s request only
by court order, on terms that the court considers proper.” Unless a defendant can show “legal”
prejudice from granting a plaintiff’s request for voluntary dismissal, such requests should ordinarily
be granted. Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997). The Tenth Circuit has
identified four non-exclusive factors that should be considered in reviewing a request for voluntary
dismissal: “the opposing party’s effort and expense in preparing for trial; excessive delay and lack
of diligence on the part of the movant; insufficient explanation of the need for dismissal; and the
present stage of the litigation.” Cnty. of Santa Fe v. Pub. Serv. Co. of N.M., 311 F.3d 1031, 1048
(10th Cir. 2002). However, “[t]his list of factors ‘is by no means exclusive,’ and factors that are
‘unique to the context of the case’ must also be considered.” Id. (quoting Ohlander, 114 F.3d at
1537). To ensure that “substantial justice is accorded to both parties,” the Court must consider the
“equities not only facing the defendant, but also those facing the plaintiff.” Brown v. Baeke, 413
F.3d 1121, 1124 (10th Cir. 2005).
GWACS has appropriately sought to dismiss its claims against Nealon with prejudice to
refiling, and the Court does not find that any other conditions are required to afford substantial
justice to GWACS and Nealon. The Court previously analyzed the relevant factors concerning
GWACS’ request for dismissal in a prior opinion and order (Dkt. # 112), and the parties are not
arguing that there has been any substantial change in circumstances that would warrant
reconsideration of any of the factors. Nealon argues that attorney fees are a necessary condition for
dismissal of GWACS’ claims against him, but he has not come forward with any evidence that he
has actually incurred attorney fees to defend against GWACS’ claims. Nealon will not be
prejudiced if GWACS is permitted to dismiss its claims against him with prejudice, and this will
16
effectively terminate the litigation as to Nealon. Nealon’s motion for summary judgment (Dkt. #
119) is moot in light of the Court’s decision to grant plaintiff’s motion to dismiss (Dkt. # 113).
C.
Defendants seek summary judgment on all of GWACS’ claims. KEA, Phagan, and
Brownells argue that GWACS did not actually produce any proprietary information pursuant to an
NDA, and plaintiff cannot meet its burden to show that any defendant violated an NDA. KEA and
Phagan assert that GWACS did not disclose to them any materials that could be considered
intellectual property or trade secrets, and they are entitled to summary judgment on GWACS’ claims
for misappropriation of intellectual property or trade secrets. Finally, defendants argue that the
parties had an ordinary commercial relationship, and Oklahoma law does not recognize a claim for
breach of implied covenant of good faith and fair dealing absent a special relationship between the
parties.
Intellectual Property and Trade Secrets
Before considering the parties’ arguments as to specific claims, the Court will review the
various contracts to determine what intellectual property, if any, GWACS possesses, and if any of
the materials produced to defendants pursuant to an NDA could qualify as a trade secret under state
or federal law. On May 3, 2010, Cavalry sold certain assets to SST to the “extent that [Cavalry]
holds legal or equitable title, if any, to the assets” defined in the contract. Dkt. # 124-2, at 5. The
“assets” sold to SST included:
(a) One (1) CAV-15 MKII cores and cavities;
(b) One (1) CAV-15 MKI cores and cavities;
(c) One (1) CAV-15 mold base;
17
(d) One (1) CAV-15 linear vibration welding resin base fixtures;
(e) all of Seller’s CAV-15 drilling fixtures; all CAV-15 specific hand tools; all CAV-
15 specific nuts, bolts, screws, roll pins; all CAV-15 front and rear pivot; take down
pins; all CAV-15 serial number tags;
(f) all Licenses for the above described assets to the extent that they are assignable,
including those set forth on Schedule 4.1;
(g) all records required to be kept on the above described assets pursuant to parts
447, 478, and 479 of C.F.R. title 27.
Id. at 8-9. There was no representation in the asset purchase agreement that Cavalry possessed any
patents, trademarks, copyrights or any other type of legally exclusive intellectual property rights to
the assets being sold to SST. In a separate agreement, Cavalry sold its remaining assets, including
all of its intangible property, to Cavalry Manufacturing, LLC. Dkt. # 123, at 38-51.
On November 22, 2011, SST entered an asset purchase agreement with GWACS for sale of
the following assets:
1. Van Don 300 Press HT Series Model 300HT 14-2865 1996 Pathfinder 4500 Controller;
2. Con Air SC30 Plastic Dryer with hopper – Serial Number 80105;
3. Branson 90 Series Linear Vibration Welder Model VW2 Serial Number 96R523769;
4. Take Down Pin Sets (1,500+);
5. Serial Number tags (1,0000+);
6. CAD drawings, design prints to the molds, including any and all intellectual property
(“IP”) related thereto;
7. Take Down Pins specification;
8. Miscellaneous tools and equipment to manufacture, market and sell the Lowers.
18
Dkt. # 124-4, at 10. Although the asset purchase agreement states that GWACS purchased
“intellectual property,” the agreement does not state that SST was representing that it had any
exclusive or protected rights to the drawings, prints, molds, or other property sold to GWACS. The
agreement states that SST agreed to “assign and deliver to Purchaser . . . all of Seller’s rights, title
and interest” in the assets being sold, and SST represented that it had “sole and exclusive, good and
merchantable title to the Assets” being sold. Id. at 2. GWACS argues that the agreement with SST
did not include all assets being sold to GWACS, because Phagan was worried that the Bureau of
Alcohol, Tobacco, Firearms, and Explosives (ATF) would investigate him for creating the CAV-15
without a valid federal firearms license. Dkt. # 143, at 4. Phagan testified in his deposition that the
wording of the asset purchase agreement was changed to avoid potential liability to the ATF, but
these changes had no effect on what was being sold to GWACS or the intent of the parties as stated
in the written agreement. Dkt. # 143-4, at 2-4.
In 2016, Nealon claims that he found several boxes containing a thumb drive and blue prints
of firearms at his home. Dkt. # 123, at 4. He states that he did not know the precise contents of the
thumb drive, because he did not have the software to open it. Id. Nealon claims that it is unlikely
that the thumb drive contained any confidential or proprietary materials, because he had freely
shared materials relating to the CAV-15 receiver at trade shows, forums, and on the internet. Id. at
4. Nealon believed that he had made such extensive public disclosures concerning the CAV-15
receiver that the materials he found in 2016 could not be considered “protectable intellectual
property.” Id. Cavalry Medical sold KEA two boxes of blue prints and the thumb drive. Id. at 64.
GWACS believes that Nealon had retained a copy of the CAV-15 files that it purchased from SST,
and GWACS suggests that these files were included in the material that Nealon sold to KEA. Dkt.
19
# 143, at 6. However, GWACS cites no evidence to support its belief that Nealon that retained a
copy of the CAV-15 files that were sold to GWACS, and GWACS’s speculation on this matter
cannot be used to support a genuine dispute as to a material fact.
GWACS repeatedly claims that defendants misappropriated its “intellectual property,” but
GWACS must establish it disclosed information to defendants that was actually “intellectual
property” as that term is commonly understood. The Court will separately consider whether any
defendant breached an NDA by using proprietary information disclosed pursuant to an NDA to
develop a competing product, and the Court will initially focus on whether GWACS possesses any
legally protected intellectual property. GWACS purchased certain assets from SST and these assets
included design files or drawings relating to the CAV-15. However, GWACS could purchase rights
to the assets only as good as the rights possessed by SST, and SST did not have any patents or other
type of exclusive intellectual property rights to the property being sold. Nealon admits that he freely
shared information about the manufacture and design of the CAV-15 with customers and on the
Internet, and the agreement between Cavalry and SST does not suggest that either of those parties
believed that SST was purchasing any property that was protected by a patent or that was considered
“intellectual property’ under state or federal law. GWACS complains that Phagan and SST may
have committed fraud by falsely representing that SST had exclusive rights to certain property
before GWACS and SST entered an asset purchase agreement in November 2011. This has nothing
to do with the existence of intellectual property rights now or at the time the asset purchase
agreement was executed, and there is no evidence suggesting that Phagan represented that SST was
selling GWACS a patent or other protected intellectual property rights. The Court will not refer to
the CAV-15 receiver in any of its forms, or materials related to the CAV-15 receiver, as intellectual
20
property. Information about GWACS’s financial condition is also not intellectual property, although
this information may be protected as a trade secret or as proprietary information disclosed pursuant
to an NDA. Due to GWACS’ failure to identify any intellectual property in its possession, KEA and
Phagan are entitled to summary judgment on plaintiff’s claim for misappropriation of intellectual
property (sixth cause of action).
GWACS also asserts a claim against KEA and Phagan for misappropriation of trade secrets,
and the Court will consider what, if any, information relating to the CAV-15 or GWACS’ financial
status qualifies as a trade secret under state or federal law. The Defend Trade Secrets Act, 18 U.S.C.
§1831 et seq. (DTSA), defines a “trade secret” as:
all forms and types of financial, business, scientific, technical, economic, or
engineering information, including patters, plans, compilations, program devices,
formulas, designs, prototypes, methods, techniques, processes, procedures, programs,
or codes, whether tangible or intangible, and whether or how stored, compiled, or
memorialized physically, electronically, graphically, photographically, or in writing
if --
(A) the owner thereof has taken reasonable measures to keep such
information secret; and
(B) the information derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertainable
through proper means by, another person who can obtain economic value
from the disclosure or use of the information.
18 U.S.C. § 1839(3). Oklahoma has adopted the Uniform Trade Secrets Act (UTSA), which defines
a “trade secret” as :
information, including a formula, pattern, compilation, program, device, method,
technique or process, that:
a. derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by other persons who
can obtain economic value from its disclosure or use, and
21
b. is the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.
OKLA. STAT. tit. 78, § 86(3). Oklahoma courts consider the factors from the Restatement of Torts,
§ 757, Comment B to assist courts in determining whether information is a trade secret, and these
factors are:
(1) the extent to which the information is known outside of the business; (2) the
extent to which the information is known by employees and others involved in the
business; (3) the extent of measures taken by the business to guard the secrecy of the
information; (4) the value of the information to the business and to competitors; (5)
the amount of effort or money expended by the business in developing the
information; and (6) the ease or difficulty with which the information could be
properly acquired or duplicated by others.
MTG Guarnieri Mfg., Inc. v. Clouatre, 239 P.3d 202, 210 (Okla. Civ. App. 2010).
The Court initially notes that the CAV-15 receiver in any of its forms is not patented and is
a publicly available product, and there is no evidence that GWACS was in the process of obtaining
a patent for any aspect of the production or design of existing models of the CAV-15 receiver. The
Supreme Court has explained that trade secret laws are primarily intended to prevent industrial
espionage, and the “public at large remain[s] free to discover and exploit the trade secret through
reverse engineering of products in the public domain or by independent creation.” Bonito Boats,
Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 155 (1989). Under the DTSA, the acquisition of
a trade secret by “improper means” does not include reverse engineering or independent derivation,
which is expressly permitted by the statute. 18 U.S.C. § 1839(6)(B). Defendants have produced
evidence showing that GWACS provided its customers photographs of the interior of the CAV-15
receiver, extensive information as to ways to modify the receiver, product specification and
measurements, and the composition of the polymer. Dkt. # 187-1, at 7, 37-46, 48-50, 54. Jones
also posted a video on YouTube and disclosed to customers features of the proposed MK III and MK
22
IV receivers. Id. at 60, 63, 66. The evidence shows that GWACS generally failed to maintain
secrecy over the design, composition, and features of the MK I and MK II that were available for
purchase by the general public. Jones freely disclosed photographs, design specifications, and
information about the composition of these products with anyone who requested this information,
and it appears that GWACS had no policy of maintaining secrecy over this information. This
information was also not subject to a patent or any other type of intellectual property protection, and
defendants were free to reverse engineer products that were available for purchase in the public
marketplace. However, the Court finds that there is a genuine dispute as to whether information
about the design, manufacture, or features of the MK III and MK IV were trade secrets. There is no
evidence suggesting that defendants were aware of GWACS’ disclosures of features of the MK III
or MK IV, and defendants learned of the features of these products pursuant to investment packet
that was disclosed to defendants subject to an NDA. A reasonable jury could find that information
related to the manufacture and design of the MK III and MK IV qualifies as a trade secret under state
or federal law.
As to GWACS’s financial information, the Court finds that there is a genuine dispute as to
a material fact concerning GWACS’ efforts to maintain the secrecy of its financial condition and
pricing of its new products. GWACS made general public announcements that it was essentially
out of stock of its existing lower polymer receivers, but this is not the same as a public declaration
concerning GWACS’ financial condition. Defendants have not produced evidence suggesting that
GWACS publicly disclosed that it was seeking investors, the amount of the investment that GWACS
was seeking, or that the pricing for the proposed MK III and MK IV were generally known to the
public. See Dkt. # 143-11. GWACS took the step of requiring KEA and SST to execute an NDA
23
before reviewing this information and the information was not available to the public, and this tends
to show that GWACS intended to maintain secrecy over its financial information. GWACS argues
that KEA relied upon information relating to GWACS’ financial condition, specifically GWACS’
inability to produce and manufacture new products, when making the decision to develop a
competing product. Dkt. # 143, at 8-9, 12-13. The Court will separately consider whether GWACS
has come forward with evidence as to the elements of a claim for misappropriation of trade secrets,
but GWACS has adequately shown that its financial information may constitute a trade secret.
Misappropriation of Trade Secrets (Second Cause of Action)
GWACS asserts claims for misappropriation of trade secrets under federal and state law.
GWACS’ second cause of action alleges that KEA and Phagan violated 18 U.S.C. § 1831, and
GWACS asserts a civil claim pursuant to 18 U.S.C. § 1836. GWACS also seeks relief under the
UTSA, which has been adopted by Oklahoma. Under 18 U.S.C. § 1831, it is a violation of federal
criminal law to intentionally or knowingly steal, receive, or possess a trade secret for the benefit of
a foreign government or agent. Federal law also provides a civil remedy for the owner of a trade
secret that is misappropriated if the trade secret is used or intended for use in interstate commerce.
18 U.S.C. § 1836. The elements of a claim under § 1836 are virtually identical to the elements of
a claim under the UTSA, and there is no need for the Court to separately consider whether GWACS
may proceed with a misappropriation of trade secrets claim under state and federal law. Assessment
Technologies Institute, LLC v. Parkes, 588 F. Supp. 3d 1178, 1211 (D. Kan. 2022) (elements of
claims under the DTSA and UTSA are “almost identical). Under either statute, a plaintiff must
come forward with evidence establishing “(1) the existence of a trade secret; (2) the acquisition, use,
or disclosure of the trade secret without consent; and (3) that the individual acquiring, using, or
24
disclosing the trade secret knew or should have known the trade secret was acquired by improper
means.” Id.
The Court has already considered whether any information acquired by KEA pursuant to an
NDA could be considered a trade secret, and the Court has determined that there is a genuine dispute
as to whether information about the design and manufacture of the MK III and MK IV and financial
information disclosed by GWACS could qualify as trade secrets. GWACS must also show that KEA
improperly used or acquired the trade secrets and knew or should have known that the use or
acquisition of the information was improper. The parties’ briefing focuses heavily on the existence
of a trade secret, but the circumstances giving rise to GWACS’ misappropriation of trade secrets
claim are sufficient to satisfy the remaining elements of this claim as to KEA.2 KEA received
information about GWACS’ financial condition pursuant to an NDA, and KEA was aware that
financial information identified as proprietary by GWACS fell within the scope of the NDA. The
evidence shows that KEA developed a competing product after it learned that GWACS was
currently unable to produce more of its existing products or fully develop the MK III and MK IV
for production and distribution. Viewing the evidence in a light most favorable to GWACS, a
reasonable jury could find that KEA chose to develop a competing product after learning that
GWACS’ lower polymer receivers would essentially be leaving the marketplace. This could
reasonably support a finding that KEA misappropriated information it received pursuant to the NDA
and that it acted with the necessary intent. To be clear, GWACS may not proceed with a
2 GWACS alleges a misappropriation of trade secrets claim against GWACS and Phagan, but
the parties focus heavily on KEA’s alleged acquisition and misuse of trade secrets. As will
be explained below, the same information that qualifies as trade secrets also meets the
definition of proprietary information under the NDA, and Court will analyze Phagan’s
conduct in greater detail in relation to GWACS’ breach of contract claim. See infra at 31-32.
25
misappropriation of trade secrets claim as to alleged misappropriation of the design, production, or
features of the MK I or MK II receivers, and this claim is limited to financial information that was
disclosed pursuant to an NDA and information related to design, manufacture, and composition of
the MK III and MK IV receivers.
Breach of Contract
Defendants argue that they did not use any “proprietary information” in violation of the
NDA, because the NDA does not prohibit them from using information disclosed pursuant to the
NDA if the information was already in their possession or was publicly available. Dkt. # 117, at 16-
17. Defendants also argue that GWACS’ interpretation of the term “proprietary information” is “so
overly broad, vague, and generic that it would be impossible for KEA to even compete in the
marketplace,” and the NDA does not prevent KEA from independently developing and marketing
its own products. Id. at 17. Under Oklahoma law, “[a] breach of contract is a material failure of
performance of a duty arising under or imposed by agreement.” Lewis v. Farmers Ins. Co., 681 P.2d
67, 69 (Okla. 1983). The three elements of a breach of contract claim are “1) formation of a
contract; 2) breach of the contract; and 3) damages as a direct result of the breach.” Digital Design
Grp., Inc. v. Info. Builders, Inc., 24 P.3d 834, 843 (Okla. 2001). In this case, the parties do not
dispute that the NDA was a binding contract and, for the purpose of summary judgment, defendants
have not raised an issue as to GWACS’ damages. The issue before the Court on defendants’
motions for summary judgment is whether any defendant breached an NDA by misusing proprietary
information.
The parties entered an NDA for the purpose of “engag[ing] in discussions concerning the
establishment of a business relationship between them,” and they anticipated that confidential or
26
proprietary information would be exchanged during this process. Dkt. # 124-7, at 2. The NDA
defines “proprietary information” as:
any information disclosed by one Party (the “Discloser”) to the other Party (the
“Recipient”) (i) that is marked “Proprietary” or (ii) that relates to the business of the
Discloser or the Discloser’s affiliates, including without limitation, trade secrets,
know-how, data, operations, records, finances, assets, technology, software, research,
inventions, future products, customer information, or business development plans.
Id. However, the NDA provides certain exceptions to this definition:
Limitation on Obligations. “Proprietary Information” shall not include information
which:
(a) At the time of disclosure was already in the possession of the Receiving Party;
(b) Is independently made available to the Receiving Party by a third party not
bound directly or indirectly by a non-disclosure obligation to the Disclosing Party;
(c) Is in the public domain; or
(d) Is independently developed by the Receiving Party without reference to
Proprietary Information received from the Disclosing Party.
Dkt. # 124-7, at 3.
The Court will initially consider what information disclosed by GWACS pursuant to the
NDA can be considered “proprietary” for the purpose of a breach of contract claim. In response to
a discovery request, GWACS stated that the “proprietary information disclosed to defendants
included:
financial information of Armory [GWACS]; that Armory was seeking investors for
continued manufacturing and development; total CAV-15 MKII lower sales volume;
CAV-15-15 MK II sales following In Range videos; its intent to use Marks MKIII
and MKIV for future CAV-15 models; financial projections for future CAV-15
production and sales; drawings/renderings of the CAV-15; the MKIII CAD
renderings and functionality improvements to include several features that were
included in the KEA polymer receiver; and the MKIV adjustable stock CAD
renderings and functionality.
27
Dkt. # 124-69, at 8 (bracket added). In connection with GWACS’ claims of misappropriation of
trade secrets and intellectual property, the Court has reviewed what information was disclosed
pursuant to the NDA and what information could qualify as intellectual property or trade secrets.
The definition of “proprietary information” differs in some respects from the statutory definition of
“trade secrets,” but these differences are not material for analysis of GWACS’ breach of contract
claim. GWACS’ financial information may reasonably qualify as proprietary information, because
defendants have not shown that GWACS’ financial condition or its proposal for investments were
public knowledge. Information about the design or functionality of existing versions of the CAV-15
receiver, such as the MK I or MK II does not constitute proprietary information, because the product
was available to the public without any type of intellectual property protection. Any person could
replicate or reverse engineer these products, and design information about the MK I and MK II falls
under “public domain” exception to the definition of “proprietary information” in the NDA. As to
information relating to the proposed MK III and MK IV receivers, these products were not publicly
available and the Court has determined that there is a genuine dispute as to whether KEA relied on
GWACS’ disclosures under the NDA to develop a new lower polymer receiver. The Court finds
that the same information that qualifies as a trade secret should also be treated as “proprietary
information” for plaintiff’s breach of contract claim.
Defendants argue that GWACS conceded in pretrial discovery that no proprietary
information or trade secrets were disclosed to defendants or that GWACS was actually harmed by
defendants’ conduct. Dkt. # 118, at 9, 11-12. Defendants requested a deposition of GWACS’
corporate representative pursuant to Fed. R. Civ. P. 30(b)(6), and the notice of deposition directed
GWACS to produce a person knowledgeable with the proprietary information and trade secrets that
28
were allegedly disclosed to defendants. Dkt. # 124-70. Defendants claim that GWACS’ corporate
representative, Gudgel, was unable to provide anything other than vague and unsubstantiated
testimony in response to questions concerning the specific proprietary or trade secrets that were
allegedly exploited by defendants. Defendants take the position that Gudgel’s deposition testimony
is binding upon GWACS and Gudgel’s failure to provide adequate responses to defendants’
inquiries require the Court to enter judgment in their favor as a matter of law. Dkt. # 118. There
is no dispute that defendants served notice to take the deposition of GWACS’ corporate
representative, and the notice of deposition stated that GWACS’s corporate representative should
be prepared to provide information concerning the “‘proprietary information’ you claim KEA used,
disclosed, and/or exploited.” Dkt. # 124-70, at 3. Gudgel’s responses to defense counsel’s questions
on this issue lacked specificity, and defendants could reasonably have sought clarification on the
information that defendants allegedly exploited and the basis for GWACS’ damages. However, the
Court finds that defendants’ argument concerning Gudgel’s deposition testimony does not provide
a basis for the Court to enter judgment against GWACS. As with other issues in this case, this is
a straightforward discovery dispute that should have been resolved by the parties or by means of a
motion to compel, and the remedy for Gudgel’s unsatisfactory deposition testimony would have
been a supplemental deposition.
GWACS have alleged a breach of contract claim against KEA, Phagan, SST, and Brownells,
and a key issue is whether each of these defendants actually received proprietary information
pursuant to an NDA with GWACS. This analysis differs somewhat as to each defendant. The mere
disclosure of an investment packet to each defendant or a defendant’s knowledge of the design
features of GWACS’ existing products will not be enough to show that a defendant violated the
29
NDA. Instead, GWACS must identify specific information that was disclosed to each defendant and
establish that the information was proprietary under the NDA.
Brownells argues that it did not receive any proprietary information from GWACS after it
executed an NDA, because the information that GWACS provided to Brownells was not confidential
or proprietary and was not protected by the NDA. Dkt. # 118, at 13-15; Dkt. # 160, at 8-9. The
parties do not dispute that GWACS notified Brownells that it was seeking investors to finance the
purchase of new molds and equipment and that GWACS sought a letter of intent from Brownells
as to the number of MK III receivers it would purchase from GWACS. Dkt. # 145-2, at 3. GWACS
argues that it did not publicly disclose that it was unable to produce receivers for the WWSD project.
However, GWACS posted on its website that it had “virtually sold out” of MK II receivers and it
was unable to produce more due to the condition of its molds. Dkt. # 124-54. Brownells received
an investment packet from GWACS, but Brownells did not forward the packet to anyone outside
of the company. Dkt. # 145-1, at 19. Brownells and KEA made a proposal to GWACS to use its
existing molds for the MK II receiver after GWACS announced on its website that it had problems
with its molds. Dkt. # 142-2, at 5-7. GWACS has not shown that Brownells or KEA relied on
proprietary information when making this proposal, as GWACS had already publicly disclosed that
it could not manufacture any more MK I or MK II receivers. GWACS also argues that Brownells
knew that KEA was using the MK II design as a starting point for a new lower polymer receiver.
Dkt. # 145, at 9; Dkt. # 145-1, at 14-15. The Court has determined that the design of the MK II was
not a trade secret or proprietary information, and this does not show that Brownells’ communications
with KEA violated an NDA with GWACS. GWACS has not met its burden to come forward with
30
evidence showing that Brownells breached the NDA by misuing proprietary information, and
Brownells’ motion for summary judgment (Dkt. # 118) is granted.
Phagan is the owner of SST and he sold to GWACS information related to the design and
production of the CAV-15 receiver in 2011. SST and GWACS entered an NDA in 2013, and the
NDA included the same definition of “proprietary information” that has been discussed elsewhere
in this Opinion and Order. Dkt. # 124-6. The parties dispute whether Phagan saw photographs of
GWACS’ proposed MK III receiver in April 2018, but Phagan did suggest to GWACS that it should
ask Kasarda and InRange to enter an NDA in connection with development of GWACS new
products. Dkt. # 143-16, at 1. GWACS never entered an NDA with Kasarda or InRange, and
Phagan had discussions with InRange and Brownells about developing a new lower polymer
receiver. Dkt. # 143-22; Dkt. # 143-23, at 7-9. On September 10, 2018, Phagan told GWACS that
KEA’s president, Michael Kenney, was interested in investing in the MK III, although Kenney
claims that this was a misunderstanding on Phagan’s part. Dkt. # 143-13, at 5-6; Dkt. # 143-16, at
5. Phagan had discussions with Brownells and Kasarda about the development of a receiver similar
to the MK II for use in the WWSD rifle, and Phagan mentioned possible modifications to the
existing MK II design. Dkt. # 143-25; Dkt. # 143-26. None of this evidence tends to show that
Phagan violated an NDA or that he personally profited from the alleged violations of the NDA, and
GWACS wholly fails to tie this evidence to SST. The evidence is undisputed that SST purchased
information about the CAV-15 receiver from Cavalry and that SST later sold this information to
GWACS, and the evidence also establishes that Phagan was personally knowledgeable about the
design of the CAV-15 receivers and firearms in general. The NDA prevented Phagan from misusing
proprietary information produced pursuant to the NDA, but the NDA did not prohibit Phagan from
31
relying on his own knowledge of firearms. There is also no evidence that Phagan created,
manufactured, or distributed a competing product on his own behalf or through SST, and he was
acting as an agent for KEA for the development of a new lower polymer receiver that would be
distributed by Brownells or for use in the WWSD rifle. GWACS’ claims against Phagan seem more
in the nature of an alleged violation of a non-compete agreement based on his former employment
with GWACS, but GWACS has not shown that Phagan or SST violated an NDA with plaintiff. For
the same reasons, GWACS has not established that Phagan misappropriated a trade secret. The
Court finds that Phagan and SST are entitled to summary judgment as to GWACS’ breach of
contract claim, and Phagan is granted summary judgment as to GWACS’ misappropriation of trade
secrets claim.
The Court reaches a different conclusion as to KEA, as there is a genuine dispute as to
whether KEA misused information produced pursuant to an NDA. KEA entered an NDA with
GWACS and received an investment packet from GWACS, and the investment packet disclosed
GWACS’ financial condition and features of the proposed MK III and MK IV receivers. KEA
developed a competing product and the new product bore a substantial similarity to KEA’s products.
KEA was also aware that GWACS was unable to produce any more of the MK I or MK II receivers,
and KEA also knew that GWACS would not be able to produce its proposed MK III and MK IV
receivers. This evidence would permit a reasonable jury to find that KEA violated the NDA, and
KEA’s motion for summary judgment is denied as to plaintiff’s breach of contract claim.
Breach of Covenant of Good Faith and Fair Dealing
Defendants argue that there is no special relationship between the parties that would support
a claim for breach of the covenant of good faith and fair dealing as a matter of Oklahoma law.
32
GWACS responds that KEA and Brownells acted in bad faith by developing a competing product
using proprietary information obtained by using false pretenses, and defendants’ actions breached
the implied covenant of good faith and fair dealing. Dkt. # 145, at 14-15.
Oklahoma recognizes a common law duty for parties entering a contract that “neither party
. . . will act to injure the parties’ reasonable expectations nor impair the rights or interests of the
other to receive the benefits flowing from their contractual relationship.” First Nat’l Bank and Trust
Co. of Vinita v. Kissee, 859 P.2d 502, 509 (Okla. 1993). “In ordinary commercial contracts, a
breach of that duty merely results in damages for breach of contract, not independent tort liability.”
Warrenfeltz v. Hogan Assessment Systems, Inc., 2018 WL 1546559 (N.D. Okla. Mar. 29, 2018)
(quoting Wathor v. Mut. Assurance Adm’rs Inc., 87 P.3d 559, 561 (Okla. 2004). Absent a special
relationship between the parties, Oklahoma law does not recognize a tort claim arising out of a
breach of contract, because imposing “tort liability . . . for every breach of contract would only serve
to chill commercial transactions.” Rodgers v. Tecumseh Bank, 756 P.2d 1223, 1227 (Okla. 1988).
“The ‘special relationship’ that gives rise to tort liability for bad faith is marked by (1) a disparity
in bargaining power where the weaker party has no choice of terms, also called an adhesion contract,
and (2) the elimination of risk.” Embry v. Innovative Aftermarket Systems, L.P., 247 P.3d 1158,
1160 (Okla. 2010). Oklahoma courts have created a narrow exception to this rule in cases in which
there was “gross recklessness or wanton negligence on behalf of a party.” Beshara v. Southern Nat’l
Bank, 928 P.2d 280, 288 (Okla. 1996).
GWACS has not shown that its claim for breach of the covenant of good faith and fair
dealing is cognizable under Oklahoma law. This is an ordinary commercial contract between parties
of relatively equal bargaining power, and GWACS has made no argument that there was a special
33
relationship between the parties. Brownells is a distributor of firearms and firearm parts, and
GWACS’ arguments primarily concern the alleged misconduct of KEA. Although Brownells
entered an NDA with GWACS, GWACS has not shown that Brownells actually received or misused
any proprietary information produced by GWACS pursuant to the NDA, and GWACS allegations
of “collusion” between KEA and Brownells are speculative. GWACS has also produced no
evidence suggesting that it had a special relationship with SST or Phagan. GWACS purchased
assets from SST and had an ongoing business relationship with Phagan, but GWACS has cited no
authority that its relationship with SST or Phagan could be treated as “special” as a matter of
Oklahoma law. The lack of a special relationship between GWACS and any of the defendants is
a sufficient basis to dispose of GWACS’ claim for breach of the implied covenant and fair dealing.
Construing GWACS’ arguments broadly, GWACS could be arguing that defendants acted with
gross recklessness or wanton negligence, and this could be an attempt to fit GWACS’ claim within
the narrow exception identified in Beshara. However, the Court finds that the parties are engaged
in an ordinary commercial disagreement, and GWACS has not shown that any of the defendants
recklessly or intentionally violated the terms of the NDA by developing a competing product.
Summary judgment is granted in favor of defendants as to GWACS’ claim for breach of the implied
covenant of good faith and fair dealing (seventh cause of action).3
3 The Court’s finding concerning the legal viability of GWACS’ claim for breach of the
implied covenant of good faith and fair dealing also applies to KEA’s counterclaim seeking
relief on the same basis. GWACS raises this specific argument in its motion for summary
judgment on KEA’s counterclaim for breach of the covenant of good faith and fair dealing,
and GWACS’ motion for summary judgment is granted as to this claim.
34
D.
GWACS argues that its cease and desist letter was sent to KEA and Brownells pursuant to
a litigation privilege, and it seeks summary judgment on KEA’s counterclaims of breach of the
implied covenant of good faith and fair dealing, interference with prospective economic advantage,
business disparagement, and deceptive trade practices based on this privilege.4 Dkt. # 121, at 13-15.
GWACS also argues that KEA has failed to establish that there is a genuine dispute that GWACS
intentionally interfered with KEA’s business or that KEA actually suffered damages as a result of
GWACS’ conduct.
Litigation Privilege
Oklahoma recognizes a litigation privilege “under which attorneys, parties, jurors, and
witnesses are immune from defamation liability for statements made in the course of judicial or
quasi-judicial proceedings, so long as the statements are relevant to the proceedings.” Cardtoons,
L.C. v. Major League Baseball Players Ass’n, 335 F.3d 1161, 1166 (10th Cir. 2003). The privilege
has been extended to statements made in anticipation of litigation. Id. The litigation privilege does
not “give free reign [sic] to attorneys to defame,” and the privilege is applicable if the
communication is (1) relevant or has some relation to a proposed proceeding and (2) circumstances
surrounding the communication have some relation to the proposed proceeding.” Samson Inv. Co.
v. Chevaillier, 988 P.2d 327, 330 (Okla. 1999). The privilege applies whether the challenged
communication is true or false as long as the author or speaker of the statement had a good faith
belief in the truth of the statement. Cardtoons, 335 F.3d at 1166 (citing Kirschstein v. Haynes, 788
4 As to KEA’s counterclaim for breach of the implied covenant of good faith and dealing, the
Court’s finding that there is no special relationship between GWACS and KEA, which bars
the counterclaim for the same reasons stated in relation to GWACS’ claim on the same legal
basis against KEA.
35
P.2d 941 (Okla. 1990)). The issue of whether a communication is privileged is a matter of law to
be determined by the court. Id. at 329.
The Court finds that there is a genuine dispute as to whether GWACS’ cease and desist letter
was sent to KEA and Brownells in good faith and not merely to unlawfully interfere with the
distribution of a competing product. GWACS has presented no evidence that it undertook any kind
of investigation to understand its own intellectual property rights before sending the letter and, even
at this stage of the case, GWACS has loosely used the term “intellectual property” to describe
information that was already available to the public or that could lawfully be reverse engineered.
The cease and desist letter is based on a fundamental misunderstanding that GWACS’s purchase of
equipment and designs from SST in 2011 gave it exclusive rights to the CAV-15 and related designs.
Dkt. # 121-1, at 2. Instead, GWACS’ rights to the property that it purchased from SST were only
as good as the rights held by SST, which did not include a patent or any other type of protected
intellectual property rights. GWACS knew or should have known the limitations of its intellectual
property rights to the CAV-15 designs, and GWACS’s continued overrepresentation of its
intellectual property rights gives rise to a dispute of material fact as to whether its cease and desist
letter was sent in good faith. The Court has already noted there is a genuine dispute as to whether
KEA used materials produced by GWACS pursuant to an NDA to develop its new lower polymer
receiver, and this may independently provide a basis for GWACS to argue to the jury that it had a
good faith basis to send the cease and desist letter to KEA. However, this argument does permit the
Court to enter summary judgment based on the existence of a litigation privilege. The cease and
desist letter merely states that KEA and Brownells were attempting to distribute a product that bore
a likeness to the MKII and MKIII. Dkt. # 121-2, at 2. KEA argues that there is no evidence that
36
GWACS undertook any kind of investigation that KEA’s product was actually designed or produced
using materials disclosed pursuant to the NDA, or that Brownells had any reason to be aware of the
NDA between KEA and GWACS. While the litigation privilege may broadly protect parties making
statements in anticipation of litigation, KEA has produced sufficient evidence calling into question
whether the statements contained in the cease and desist letter were made in good faith and the Court
cannot conclusively resolve the issue of litigation privilege at this stage of the case. GWACS’
motion for summary judgment is denied to the extent that GWACS argues that KEA’s counterclaims
are barred by a litigation privilege.
Intentional Interference with Prospective Economic Advantage,
Business Disparagement, and Deceptive Trade Practices
GWACS argues that KEA cannot show that it was damaged by Brownell’s receipt of the
cease and desist letter, because there is no evidence that this harmed KEA’s relationship with
Brownells.5 The Oklahoma Supreme Court has stated that the elements of a claim of interference
with prospective economic advantage are:
1.) interference with a business or contractual right;
2.) malice or wrongful interference that it is neither justified, privileged, nor
excusable; and
3.) damage proximately sustained as a result of the interference.
5 GWACS also argues that its actions were privileged and therefore were not malicious or
wrongful, but the Court has already determined that there is a genuine dispute as to a
material fact concerning the existence of a litigation privilege. This dispute is primarily
based on evidence calling into question whether GWACS could have had a good faith belief
that it had protected intellectual property or that KEA was marketing a competing product
using GWACS’ proprietary information. This same evidence also gives rise to a dispute as
to whether GWACS’ actions were privileged for the purpose of its torts claims, and the
Court will focus on GWACS’ argument that KEA was not damaged by GWACS’ actions.
37
Loven v. Church Mut. Ins. Co., 452 P.3d 418, 424 (Okla. 2019). The elements of a claim for
business disparagement are that “(1) the defendant published false and disparaging information
about it, (2) with malice, (3) without privilege, (4) that resulted in special damages to plaintiff.”
Choctaw Town Square, LLC v. City of Choctaw, Oklahoma, 2014 WL 12818169 (W.D. Okla. Dec.
29, 2014). A claim of business disparagement is similar to a defamation claim and privilege to make
the disputed communication is a defense to a business disparagement claim. Id. at *5. Under
Oklahoma’s Deceptive Trade Practices Act, OKLA. STAT. tit. 78, § 53, a person “engages in a
deceptive trade practice when in the course of business, vocation, or occupation, the person . . .
[d]isparages the goods, services, or business of another by false or misleading representation of fact
. . . .” The plaintiff alleging a claim of business disparagement or deceptive trade practices must
establish that it suffered damages as an essential element of these claims if it is not seeking
injunctive relief. OKLA. STAT. tit. 78, § 54; Choctaw Town Square, LLC v. City of Choctaw,
Oklahoma, 2014 WL 12818169, *8 (W.D. Okla. Dec. 29, 2014).
KEA claims that it was damaged by GWACS’ conduct, because Brownells “didn’t market
the product” as it might have otherwise if GWACS had not sent the cease and desist letter. Dkt. #
142, at 9. The evidence shows that KEA’s assertion that it was harmed as a result of GWACS’s
conduct is speculative at best. Paul Levy, the director of product management of Brownells,
testified in his deposition that Brownells “didn’t market the product as much as we probably would
have otherwise,” but he also stated that the WWSD rifle had not actually been received for
distribution by Brownells. Dkt. # 121-13, at 27. Levy states that Brownells had already issued
purchase orders to KEA for receivers for the WWSD rifle, but KEA could not fill the order until the
receivers were actually produced. Id. at 28. Levy has no personal knowledge if the cease and desist
38
letter had any effect on KEA’s ability to timely manufacture and deliver the receivers for the WWSD
rifle. Id. KEA has the burden to come forward with evidence showing that plaintiff’s actions
proximately caused an injury to KEA and that KEA suffered damages as a result of plaintiff’s
conduct. KEA has produced evidence suggesting that Brownells may have curtailed marketing
efforts for WWSD rifle, but Brownells did not even contemplate terminating its relationship with
KEA or take any action to cancel the WWSD project. Mike Kenney, the owner of KEA, admitted
that KEA was in agreement with Brownells to cease marketing the WWSD rifle, and the cease and
desist letter sent by GWACS did not result in any long-term damage to KEA’s relationship with
Brownells. Dkt. # 121-12, at 21-22. KEA asserts that Brownells and InRange limited marketing
efforts between May and August 2020 due to the cease and desist letter, but the evidence is
undisputed that the WWSD rifle was not commercially viable or available for purchase during that
time period. Dkt. # 142-4, at 11. The evidence shows that the cease and desist letter that GWACS
sent had minimal or no effect on the marketing of the WWSD rifle, and KEA’s speculative assertion
for monetary damages is not sufficient to survive a motion for summary judgment.6 Summary
judgment should be granted in favor of GWACS on KEA’s counterclaims of intentional interference
with prospective economic advantage, business disparagement, and deceptive trade practices.
IV.
6 The Court notes that KEA retained an expert to calculate its potential damages on its
counterclaims against GWACS. Dkt. # 142-5. However, the expert plainly states that he
assumed that KEA would prevail on its counterclaims and that the Court would find that
GWACS’ conduct proximately caused an injury to KEA. Id. at 8. The Court has found that
the evidence is insufficient to support such a finding, and the existence of expert opinions
as to the amount of damages does not create a genuine dispute to a material fact that
precludes summary judgment in favor of GWACS.
39
This case is currently set for pretrial conference on March 1, 2023 and for jury trial on March
20, 2023. The Court has ruled on all pending motions and the claims remaining for adjudication are
GWACS’ claims of breach of contract and misappropriation of trade secrets against KEA and
KEA’s counterclaim against GWACS for declaratory relief. The Court has reviewed the docket
sheet and notes that the parties had an unsuccessful settlement conference. Dkt. # 164. The Court
will continue the pretrial conference and jury trial by 30 days to allow the parties to review this
Opinion and Order, participate in another settlement conference, and prepare for trial.
IT IS THEREFORE ORDERED that Defendant Brownells Inc.’s Motion for Summary
Judgment (Dkt. # 118) and Defendants Russell Phagan and Sinistral Shooting Technologies, LLC’s
Motion for Summary Judgment (Dkt. # 120) are granted. Brownells, Inc., Russell Phagan, and
Sinistral Shooting Technologies, Inc. are terminated as a parties.
IT IS FURTHER ORDERED that Plaintiff’s Motion for Order Dismissing Claims against
Defendant Shawn Nealon with Prejudice (Dkt. # 113) is granted, and GWACS claims against
Nealon are dismissed with prejudice. Nealon is terminated as a party.
IT IS FURTHER ORDERED that Defendant KE Arms, LLC’s Motion for Summary
Judgment (Dkt. # 117) is granted in part and denied in part: the motion is granted as to GWACS
claims for misappropriation of intellectual property (sixth cause of action) and breach of the implied
covenant of good faith and fair dealing (seventh cause of action); the motion is denied as to
GWACS’s claims of breach of contract (first cause of action) and misappropriation of trade secrets
(second cause of action).
IT IS FURTHER ORDERED that Counterclaim Defendant’s Motion for Summary
Judgment & Brief in Support (Dkt. # 121) is granted in part and denied in part: the motion is
40
granted as to KEA’s counterclaims of breach of the implied covenant of good faith and fair dealing
(second claim), interference with prospective economic advantage (third claim), business
disparagement (fourth claim), and deceptive trade practices and unfair competition (fifth claim); the
motion is denied as to KEA’s counterclaim for declaratory relief (first claim).
IT IS FURTHER ORDERED that Defendants’ Motion for Spoliation Sanctions (Dkt. #
177) is denied.
IT IS FURTHER ORDERED that Defendant Shawn Nealon’s Motion for Summary
Judgment (Dkt. # 119) is moot.
IT IS FURTHER ORDERED that the pretrial conference set for March 1, 2023 and the
Jury trial set for March 20, 2023 are stricken so that the parties have an opportunity to finalize a
proposed pretrial order reflecting these rulings. Final joint proposed pretrial order to be submitted
(not filed) no later than March 31, 2023. The pretrial conference is reset for April 5, 2023 at 10:00
a.m, and the jury trial is reset for April 17, 2023 at 9:15 a.m.
IT IS FURTHER ORDERED that this matter is set for an additional settlement conference
before Magistrate Judge Christine Little on March 3, 2023 at 9:30 a.m. Settlement conference
statements to be submitted to Judge Little (not filed) no later than March 1, 2023.
DATED this 23rd day of February, 2023.
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Chairs. "y lab C_—
CLAIRE V.EAGAN \—
UNITED STATES DISTRICT JUDGE
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