Appeals panel sends Kituwah LLC back to court: Lawsuit alleges theft of trade secrets from other tribally owned company

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Appeals panel sends Kituwah LLC back to court: Lawsuit alleges theft of trade secrets from other tribally owned company

The SBX-1 platform features a 280-foot dome in the middle. Wikimedia Commons photos

A lawsuit filed against Kituwah LLC that was initially dismissed is heading back to court after the 11th Circuit Court of Appeals ruled last month that the tribally owned corporation waived its sovereign immunity.

The decision both establishes precedent that further limits sovereign immunity and could potentially jeopardize the company’s future.

The suit filed by AQuate, a tribal LLC associated with the Alabama-Quassarte Tribal Town, alleges that Kituwah stole trade secrets to offer a competitive bid on a lucrative government contract to provide maritime security on a floating ballistic missile detection platform. AQuate had held the contract for a decade. The claim is that Jessica Myers was employed by AQuate prior to taking a job with Kituwah in 2017. The suit alleges that once the contract opened up in early 2022, Myers reached out to AQuate employees on LinkedIn seeking “trade secrets,” while also making conditional job offers contingent on Kituwah earning the contract.

Since its creation in 2018, Kituwah LLC, described as the ”government contracting arm of the Eastern Band of Cherokee Indians,” has aggressively pursued contracts for ambitious projects, and the tribe has backed those ventures with millions of dollars over the last several years.

At the end of the day, the contract, valued at over $19 million, was awarded to neither AQuate or Kituwah, but rather Global Security Management Agency, a tribally owned entity in Antioch, California. But still, the suit has been moving forward.

SBX-1

The Sea-Based X-Band Radar (SBX-1) is a $1.5 billion semi-submersible vessel — originally an oil platform from a Norwegian company later outfitted with a propulsion system that makes it seaworthy. It houses an array of radars, including a 280-foot dome in the center, the purpose of which is to identify incoming ballistic missiles and then guide rocket interceptors to neutralize them; it was especially touted for its ability to differentiate between missiles and decoys. It’s known to locals around its home port of Oahu as the “golf ball” and was designed specifically with North Korea in mind.

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“If we place it in Chesapeake Bay, we could actually discriminate and track a baseball-sized object over San Francisco,” said Air Force Lt. Gen. Henry Obering in a Senate subcommittee on April 25, 2007.

An L.A. Times story from 2015 called attention to issues with the platform, specifically noting that a design flaw led to a “field of vision so narrow that it would be of little use against what experts consider the likeliest attack: a stream of missiles interspersed with decoys.”

In 2017, the Navy claimed the platform had successfully intercepted a mock warhead under “very realistic conditions,” as again reported by The L.A. Times. However, this article notes that the “carefully scripted” test was, in fact, not realistic. As military drills often work, everyone knew what was coming and conditions favored a successful intercept. In a departure from expected combat conditions, the target missile flew along a path where it could be tracked continuously by powerful U.S. radars that provide data to the GMD system, missile defense experts told The Times. In addition, the article claims that the SBX-1 was moved to a particular spot specifically for the test where the radars had good lines of sight.

However, it’s still operational, and in March of 2023, it completed a record 662-day deployment in the Pacific Ocean before returning to Pearl Harbor for maintenance and repairs.

The contract

In early 2022, the government issued a request for proposals (RFP) for the contract to provide maritime security onboard SBX-1 beginning Oct.22 of that year. That RFP outlines much of what is expected from the security contractor. To begin with, they must provide armed force protection at sea and in port, 24/7, 365 days a year.

“All contractor Security Officers shall be qualified to employ and maintain 9mm handguns, 12-gauge shotguns, M-4 equivalent rifle, deck-mounted and handheld M-240 machine guns, and deck-mounted M-2 machine guns,” the RFP reads, adding that they must also pass physical, mental and psychological evaluations.

According to LinkedIn profiles of several men who currently provide security onboard SBX-1, most are Army, Navy or Marine Corps veterans with decades of security and anti-terrorism experience both in their branch of service and the civilian realm. Although typical salaries aren’t listed for that post, that kind of specialized experience, the ability to deploy for nine weeks at a time and maintaining the required secret clearance doesn’t come cheap.

AQuate, a Huntsville, Alabama company, served as the prime contractor providing armed security services onboard SBX-1 from 2012-2022, fulfilling two five-year contracts. It is a corporation similar in some ways to Kituwah in that it is a tribally owned entity. According to its website, AQuate has contracts with the Army, including the Signal Corps and Corps of Engineers; Department of Defense; Department of Labor; NASA; Navy; Air Force; and Marine Corps for a wide variety of services.

The suit

The suit against Kituwah LLC and Myers was filed in the federal court in the Northern District Alabama on March 18, 2022, just after the deadline for proposals for the SBX-1 contract. The suit notes that Meyers worked for AQuate from 2013 through 2017 as the company prepared to win its second bid and that she held several positions “with responsibilities over corporate security and business development.”

“In these positions, Myers had access to and knowledge of AQuate’s SBX-1 contract terms, personnel, and bidding information and strategies,” the suit reads, adding that she “signed multiple agreements governing use and disclosure of confidential, proprietary, and other sensitive information.”

It further states that the nondisclosure agreement remained in effect even after Myers’ termination date.

“Myers resigned from AQuate in September of 2017, and, in violation of her agreements with AQuate, took with her copies of AQuate’s contracts, proposals, personnel, and other security information,” the suit reads.

The suit alleges that in 2022 when Kituwah was planning to place a bid for the SBX-1 maritime security contract, Myers contacted current and former AQuate employees involved in performing and pursuing that contract.

“In these communications, Defendants expressly solicited information regarding AQuate’s pricing details and compensation structure for employees under the SBX-1 contract,” the suit states. “In one communication, Myers explicitly acknowledged, ‘I do recall some of the compensation structure from my previous capacity’ at AQuate and indicated Kituwah’s intent to bid for the SBX-1 contract.”

AQuate argued that Myers breached her contract with the company by using trade secrets for purposes other than her job with the company and ultimately claims that Myers and Kituwah violated the Alabama Trade Secrets Act and the federal Defend Trade Secrets Act of 2016.

“Kituwah and Myers know that the information they are using constitutes AQuate trade secrets and that the information was obtained by improper means and in breach of confidence,” the suit reads.

The dismissal

On July 25, 2022, the suit was dismissed by U.S. District Court Judge for North Alabama Abdul K. Kallon, who was nominated by President Barack Obama in 2009 but resigned from the bench in August 2022 just after the dismissal. The defendants’ motion to dismiss the case made a few arguments, including that AQuate didn’t adequately argue its trade secrets claim, saying that the company made certain things sound worse than they may have been.

“AQuate obviously wants those ‘communications’ [to current employees] to seem mysterious and nefarious, which is why it did not tell the Court that they were all identical LinkedIn messages,” the motion reads, adding that those messages simply asked employees their AQuate salaries; however, in the rebuttal, AQuate notes that Myers was only able to ask that in the context of her prior knowledge of the pay structure.

Kituwah argued that AQuate never alleged that its employees gave Myers any information, much less trade secrets. The motion to dismiss also claimed that because old contract data is not necessarily a trade secret, Kituwah and Myers didn’t violate the Alabama Trade Secrets Act and the Defend Trade Secrets Act, and even if they had, the statute of limitations for both would have already expired.

“Likely because of the statute of limitations issues, AQuate’s misappropriation claims are focused on Myers’ March [2022] communications with AQuate employees when she supposedly solicited AQuate’s trade secrets,” it reads. “Even if someone’s salary information could be a trade secret, simply asking for that information is not a violation under either statute. At a minimum, AQuate must allege (plausibly) that Myers obtained trade secrets from its employees. But it has not done so. The Court cannot reasonably conclude that Myers and Kituwah misappropriated trade secrets that AQuate never adequately alleged to be in their possession.”

AQuate rebutted these claims, not necessarily the facts, but more so how the law should apply to them, specifically stating that incumbent contract data and pricing info are trade secrets, as is “head knowledge.”

A matter of sovereignty

The matter that got the case dismissed regarded sovereign immunity. While Kituwah used sovereign immunity as an argument that the case should be dismissed, AQuate argued that the LLC waived any sovereign immunity since the contract was available only to businesses qualified by the Small Business Administration as participants in the 8(a) program.

The 8(a) program was established in 1978 to “help firms owned and controlled by socially and economically disadvantaged individuals.” This means that companies eligible to participate in the 8(a) program are small businesses owned by “Alaska Native corporations, Community Development Corporations, Indian tribes, and Native Hawaiian organizations.”

“SBA partners with federal agencies to promote maximum utilization of 8(a) program participants to ensure equitable access to contracting opportunities in the federal marketplace,” the SBA website says. “Once certified, 8(a) program participants are eligible to receive federal contracting preferences and receive training and technical assistance designed to strengthen their ability to compete effectively in the American economy.”

The certification qualifies a business as eligible to compete for the sole-source and competitive set-aside contracts, such as the one to provide maritime security for SBX-1. AQuate argued that to participate in the 8(a) program, a company owned by a tribe must waive sovereign immunity which allows the government to recuperate losses if a company fails to fulfill contractual obligations (known as “sue-or-be sued”).

In its reply to AQuate’s argument that it had waived sovereign immunity, Kituwah claimed it is not an 8(a) entity and therefore has not waived sovereign immunity. However, Kituwah’s website still has a whole page dedicated to explaining the benefits of its 8(a) status that specifically notes that through the program it can receive up to a $100 million award for a Department of Defense contract.

In a formal declaration to the court — under penalty of perjury — Kituwah LLC president Terry Morganson said that isn’t accurate.

“AQuate wrongly assumes that Kituwah is an 8(a). To be clear, Kituwah Global Government Group, LLC is not an 8(a),” the declaration reads. “I realized this weekend that there is language on its website indicating that it previously applied for 8(a) status. That information is incomplete. One of Kituwah’s subsidiaries is an 8(a), and the statement on the website refers to the subsidiary. I will make sure the website is updated.”

Another related issue regarded whether the tribal court of Alabama-Quassarte Tribal Town was a legitimate venue. Due to a prior, complicated legal battle, AQuate argued that “no such court exists” while Myers specifically sought to dismiss the case against her on allegations that would have been the only proper venue and not federal court.

A successful appeal

AQuate appealed the dismissal, and on May 1 the 11th Circuit Court of Appeals issued its decision overturning Kallon’s ruling and sending the case back down to U.S. District Court to be heard.

“This case first looks like a run-of-the-mill business dispute — but closer inspection reveals thorny questions of tribal sovereignty and contract interpretation,” the decision reads.

The conclusion of the three-judge panel was that Kituwah had indeed waived sovereign immunity and therefore could be sued in federal court. The decision explained its opinion regarding Kituwah’s 8(a) status and the waiver of sovereign immunity.

“The 8(a) program, at least as a general matter, requires such a waiver from participating tribes,” the decision reads. “So, to take part, a tribally owned business must adopt an express sovereign immunity waiver — also known as a ‘sue and be sued’ clause — designating the United States federal courts as ‘courts of competent jurisdiction for all matters relating to SBA’s programs including, but not limited to, 8(a) BD [Business Development] program participation, loans, and contract performance.’”

“First, as we have already explained, preparing and later submitting a bid for an exclusive 8(a) contract is a form of participation in the 8(a) program, so AQuate’s claim that Kituwah misappropriated trade secrets for that bid is necessarily ‘based on Kituwah’s participation in the 8(a) program,’” it later mentions.

The decision also addresses the validity of Myers’ argument that the case was heard in the wrong venue and should have been heard in the Alabama-Quasarte Tribal Town Court. AQuate claimed that the Alabama-Quassarte Tribal Town Court did not exist and that any evidence of the purported court was fabricated by an ousted tribal chief in an effort to retain power.

“AQuate submitted an affidavit from Famous Marshall, the Chairman of Economic Development for the Tribal Town, which stated that the tribe’s constitution did not provide for a court system and that the supposed tribal court was fictitious,” the decision reads. “Kituwah and Myers, meanwhile, maintained that the Alabama-Quassarte Tribal Town court was legitimate. In support, they submitted two orders allegedly from that court. Suspiciously absent, however, was any affidavit verifying that these exhibits were authentic — and the faces of the orders are problematic.”

What it all means

The decision from the 11th Circuit made some waves in the legal community as no other appeals court has offered a comprehensive view of 8(a) sovereign immunity waivers to this point. Ultimately, it means that tribally owned businesses do, in fact, wave sovereign immunity and are therefore subject to lawsuits.

The district court dismissed the suit based on Kituwah’s argument that AQuate’s suit did not “relate to” participation in the program. But on the heels of the 11th circuit’s overturning of that ruling, one blog post argued that “Tribally owned government contractors should adjust their operations” based on the key takeaways from the case and broader implications across different types of litigated disputes.

“… although the AQuate suit only involved trade secrets claims, the language used in the decision sweeps broadly,” the post reads.

“Tribally-owned entities that may seek to invoke sovereign immunity in future cases should be wary of advancing immunity arguments unless there is a reasonable and legitimate argument that the plaintiff’s claims do not relate to 8(a) Program participation,” the blog later notes.

While it’s not known exactly what damages AQuate is seeking, given the nature and value of the contract, the number could be substantial, which would be a major blow to the company and thus EBCI. Like with new tribal gaming ventures and the cannabis venture, Kituwah has invested aggressively in a diverse array of projects, from leasing the land for a new Bucee’s in Sevierville to buying Cardinal Homes, a manufactured home company.

However, if a heavy judgment is handed down, those large investments which have not likely had time to yield ample returns could become a burden. To make matters worse, last year’s budget indicated that casino revenue may be flagging. In a meeting last month, former Big Cove Rep. Teresa McCoy put it bluntly when arguing that recreational adult use of cannabis should be expedited to immediately create revenue, saying “you sure ain’t getting any gaming money, are you?”

While there was no concrete data presented to back up that claim, between the legalization of mobile sports betting in North Carolina and new competition popping up, such as the Catawba Nation’s recent groundbreaking on the $700 million Two Kings Casino Resort, only a couple of hours from Cherokee, relying solely on gaming is clearly a thing of the past.

news Chief Michell Hicks

Principal Chief Michell Hicks. File photo

That same meeting where McCoy spoke, Principal Chief Michell Hicks hinted that other investments may not be panning out.

“We’ve seen examples of rushing into some of our investments that are not paying off…” he said.

About two weeks ago, Kituwah petitioned the circuit court for an en banc hearing — meaning the entire court and not just a three-judge panel would hear the appeal. That petition is still pending, and if it’s denied, the case will continue on in U.S. District Court, as before.

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